Firmer-than-forecast UK and US data calmed investor nerves on Wednesday, lifting Britain's top share index 1.5 percent by the close, with miners rallying after BHP Billiton reported an increase in profits. The FTSE 100 ended up 64.14 points at 4,228.60, adding to a 2.1 percent gain on Tuesday, with the index posting its first consecutive gains in a month.
Investors, rattled by a relentless stream of bad news, seized on data that showed the UK service sector may not be contracting as rapidly as forecast, evidence that the outlook may not be as gloomy as previously feared. Better-than-forecast US service sector figures also boosted equities, but analysts remain downbeat about prospects for the UK economy, and soaring job losses and crumbling consumer confidence have firmed expectations of a rate cut from the Bank of England on Thursday.
"Some of the leading indicators may be bottoming out at very low levels," said Kevin Gardiner, head of global equity strategy at HSBC Investment Bank. "The market has been pricing in a heck of a lot of bad news, it will be higher at year-end, but we've been saying that investors don't need to rush to put any money to work and that's how its panned out." Strength in heavyweight miners provided the main boost to blue chip shares as investors digested results from the world's biggest miner, BHP Billiton.
BHP shares jumped 9.4 percent after it reported a 2.2 percent rise in first-half profit, aided by a last burst of Chinese demand growth. "We had the China PMI indicator release ... which was a bit better than people expected, suggesting there are signs of life in the stimulus that the Chinese government is putting through ... so I think that's also boosting some of the miners," said Graham Secker, UK equity strategist at Morgan Stanley.
Among other miners, Rio Tinto, Antofagasta and Xstrata added between 11.1 and 14.8 percent. Kazakhmys was the top FTSE 100 riser, up 14.0 percent, while peer Eurasian Natural Resources added 9.4 percent. The companies benefited from news of a devaluation of the Kazakh currency, effectively cutting costs for both. ENRC posted a 22 percent fall in fourth-quarter production of ferroalloys, its most profitable metal, and reiterated a gloomy forecast for 2009 on Wednesday.
Ex-dividend considerations took 13.77 points off the FTSE 100 index Wednesday, with heavyweights AstraZeneca, Royal Dutch Shell and Sage Group all among the top fallers after losing their dividend attractions. Insurer Aviva gained 11.2 percent after the firm reassured on its capital strength and said its dividend policy was unchanged as it reported a better-than-expected 8 percent rise in full-year sales.
BSkyB firmed 2.3 percent on news the satellite group has won the rights to broadcast four out of six Premiership League packages in the 2010-2013 period. Defensive stocks, which tend to underperform in a rising market, slid with Anglo-Dutch household products group Unilever shedding 4 percent ahead of its full-year results, due on Thursday.
Traders said the stock was also pressured by results from the United States which showed peers Kraft Foods and Sara Lee cutting profit forecasts for the coming year. Similarly, Imperial Tobacco and British American Tobacco, off 2.5 and 3.1 percent respectively, were weighed down by US rival Philip Morris International, which said its profit outlook was below Wall Street forecasts.