Britain's blue chip index ended higher on Wednesday, buoyed by mining and financial stocks as investors hoped that an end to subprime-related losses was finally in sight, though analysts remained sceptical. The FTSE 100 advanced 63.3 points or 1.1 percent at 5,915.9 to edge closer to the psychological 6,000 level and notch a third successive session of gains.
A $19-billion write down by Swiss bank UBS in the previous session raised hopes that banks were aggressively cleaning up their books. The positive mood among traders was further boosted by US stocks, which traded higher, recovering from Federal Reserve comments that a US recession was possible.
The big economic news is due on Friday however, with the release of US non-farm payroll jobs numbers, traders said. In mining shares, Xstrata gained 3.5 percent after a media report that Brazil's Vale held open the door for a possible resumption of take-over talks with the Anglo-Swiss miner.
Brazil's state development bank BNDES said on Tuesday it had approved 7.3 billion reais ($4.2 billion) in loans for mining giant Vale to invest in the country through 2012. The sector was generally firmer, with BHP Billiton, Rio Tinto and Vedanta Resources all up. Kazakhmys was 0.8 percent after trading ex-dividend.
Banks rose, with Barclays, Royal Bank of Scotland and Standard Chartered up between 1.7 and 5.7 percent. HBOS shed 1.9 percent, however, after Britain's biggest mortgage lender said its retail margins are likely to remain under modest pressure this year, repeating guidance given with its recent results, but could improve in future years.
Insurers also gained on the positive sentiment, traders said, with Old Mutual up 6.2 percent and Legal & General 3.6 percent higher. "There absolutely has to be more bad news to come but the UBS development was certainly extremely positive," said Jim Wood-Smith, head of research at Williams de Broe. "You can't get closure before we've had disclosure... (But) that's got to be a vote of confidence that UBS has finally kitchen-sinked itself."
The London Stock Exchange tacked on 4 percent after the bourse said it would move trading of Italian equities to its trading system TradElect by the end of the year, aiming to generate cost synergies after the take-over of Borsa Italiana.
Pharmaceutical stocks also featured among gainers, with GlaxoSmithKline up 1.9 percent after researchers said the drugmaker's controversial diabetes drug Avandia, linked to increased heart attack risk, may prove to be effective in preventing the progression of blockages after heart surgery to repair narrowing arteries, according to a small study. Rival AstraZeneca added 1.7 percent after Citi upgraded its rating on the drugmaker to "buy" from "hold".
On the downside, Severn Trent was 3.7 percent lower after the water utility said it expected profit before tax and interest in the year to the end of March to be in line with expectations. In other commodity shares, oil shares were mixed as US crude slipped to about $100 a barrel. Royal Dutch Shell added 0.2 percent, Cairn Energy shed 0.1 percent and Tullow Oil dipped 2.5 percent.
Among midcaps, Imperial Energy slumped 29 percent after the Russia-focused oil firm said it had signed an agreement with Hoare Govett and Merrill Lynch International for a standby equity underwriting commitment of up to $600 million.
"The FTSE 100 marches back towards that key 6,000 level driven predominantly by the banks amidst ongoing speculation that the worst of the credit market woes are now behind us," said one London trader on the UK equity picture.