Britain's leading share index closed 1.2 percent higher on Friday after US data showing employers shed fewer jobs last month than expected. The FTSE 100 closed up 54.95 points at 4,851.70, posting its biggest percentage gain in two weeks as it snapped a three-session losing streak.
Banks, viewed as risky assets, were in positive territory. Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered were up between 0.1 and 2.2 percent. Optimism over the health of the world's largest economy was driven by data showing US non-farm payrolls fell by 216,000 in August, fewer than a forecast of 225,000 job losses. The unemployment rate, however, rose to 9.7 percent.
"The headline (non-farm payrolls) figures might have cheered investors. The revision downwards for July was a slight negative but the figures were not too far from forecasts," said Keith Bowman, analyst at Hargreaves Lansdown. The US Labour Department also said payroll losses in June and July were 49,000 more than initially estimated.
Miners were in demand as gold came within a whisker of $1,000 an ounce. Gold miner Randgold Resources was up 3 percent, while BHP Billiton, Anglo American, Xstrata and Kazakhmys were 1.2 to 3.6 percent. Lonmin, the world's third biggest platinum producer, surged 9.4 percent on speculation former suitor Xstrata would renew a take-over bid after regulatory restrictions lapse next month.
Meanwhile, Anglo American is unlikely to make a decision for several weeks on whether to force Xstrata to make a formal bid or walk away, a source close to the situation said. Rio Tinto advanced 3 percent. The miner has suspended iron ore price talks with Chinese steel mills after its top salesman in China was detained, Australia Associated Press quoted Rio's iron ore boss as saying.
Insurers also joined in the rally. Aviva, Legal & General, Prudential, Old Mutual and Standard Life gained 1.3 to 3.9 percent. Vodafone advanced 2.3 percent after the Financial Times reported Deutsche Telekom had held preliminary talks with Vodafone, France Telecom and Spain's Telefonica over the sale of its T-Mobile UK unit.
Meanwhile, data showed British construction volumes fell by a smaller than expected 0.5 percent in the second quarter this year, prompting speculation about a possible upward revision to GDP in the quarter. The International Monetary Fund (IMF), however, has worsened its 2009 outlook for Britain's growth, predicting a 4.5 percent contraction instead of 4.2 percent, according to a document obtained by Reuters.
The IMF forecasts the world economy will grow 2.9 percent in 2010, revised up from the 2.5 percent it predicted in April, after it sees a global shrinkage of 1.3 percent in 2009. In a sign of an improvement in the outlook for companies, UBS increased its estimates of earnings per share (EPS) growth for European corporates for 2010 to 25 percent from 15 percent, citing continuing improvements in the economy.
"Given our view on the bounce-back in earnings growth next year and increasing conviction that the economic cycle has turned, we feel the fundamental backdrop remains supportive," said Nick Nelson, UBS's European equity strategist. On the downside, defensive food retailers were in the doldrums. Cadbury and Unilever both fell around 0.4 percent, while household goods firm Reckitt Benckiser lost 0.2 percent.