Britain's leading shares climbed on Wednesday, tracking a rise on Wall Street and as US recession fears prompted investors to scurry into defensive stocks as bank shares took yet another whipping. The FTSE 100 closed up 7.4 points, or 0.1 percent at 5,875.4. Wall Street rose on encouraging results from Walt Disney and Time Warner Inc, but Japan's Nikkei average slid 4.7 percent on Wednesday.
European shares ended higher but after a day of choppy trade across the continent in which the FTSE's low for the day was 5,816.4. The FTSE 100 tumbled 2.6 percent on Tuesday, after a surprising fall in a key gauge of US service sector activity, bringing the index's loss for the year so far to nearly 9 percent.
"Investors are rather shell-shocked by yesterday's ISM non-manufacturing ISM data from the United States," said Jeremy Batstone-Carr, head of research at Charles Stanley.
"Although for those firmly with their feet in the US recession camp, such as us, it does little more than confirm what we had already suspected... that US growth over the first quarter will probably come in negative territory."
Merger activity grabbed investors as Rio Tinto rejected a sweetened all-share bid from rival mining group BHP Billiton. BHP's bid could trigger a Chinese-led counterbid in the world's second biggest corporate take-over.
Shares in BHP tumbled 4.8 percent, while Rio shed 0.3 percent. The sector staged a mixed performance, with Anglo-Swiss miner Xstrata up more than 1 percent as traders cited market talk of a bid from Brazil's Vale. Xstrata declined to comment.
Defensive shares gained as investors decided to play it safe. Index-heavyweight Vodafone advanced 0.4 percent, United Utilities put on 1.9 percent, British Energy rose 4.2 percent and Cadbury tacked on 2.7 percent. Banks, however, were the worst hit, swiping about 14 points off the index. Lloyds TSB dropped 1.7 percent, HSBC fell 1.6 percent, Royal Bank of Scotland was down 1.3 percent and HBOS lost 1.2 percent.
BOE VERDICT EYED: On the economic front, the BoE is widely expected to cut interest rates by a quarter of a percentage point to 5.25 percent on Thursday. "But what can't possibly be priced in is what the statement may say about the outlook, and therein lies the scope for a surprise either on the up or the downside," said Charles Stanley's Batstone-Carr.
A survey showed consumer confidence in Britain fell to its lowest level in nearly four years in January as uncertainty over the economic outlook was compounded by market gyrations and inflation. Pay-TV firm BSkyB rose more than 7 percent after it said it was making more money per user, increasing customer loyalty and operating in line with targets.
Reckitt Benckiser added 4.4 percent after ABN Amro raised its price target on the stock to 3,125 pence from 3,120 pence, keeping a "buy" rating. BP rose 0.3 percent after Credit Suisse lifted its price target and Royal Dutch Shell also ticked higher. But BG Group and Tullow Oil fell, as did US crude oil prices. AstraZeneca and Sage fell after trading without the rights to dividends.