Britain's leading share index ended 0.3 percent higher on Wednesday as mining firms gained on the back of higher commodity prices, outpacing some weakness in banks and energy stocks. The FTSE 100 closed 15.22 points higher at 5,327.39, adding to Tuesday's strength when the index recorded its biggest one-day gain in more than four months as worries over Dubai's debt problems receded.
Mining stocks extended gains from the previous session, underpinned by firmer metals prices as gold hit a new record high at $1,216.17 an ounce and copper touched a 14-month high earlier in the session. Positive broker comments also helped support stocks in the sector. Platinum miner Lonmin added 3.2 percent as Investec raised its rating to "buy" from "hold", while Vedanta Resources was up 2.5 percent as Goldman Sachs raised its rating to "buy" from "neutral" in a review of the European metals and mining sector.
Eurasian Natural Resources, Xstrata, Rio Tinto, Anglo American and Kazakhmys put on 0.3 to 2.5 percent. "Buoyant mining stocks, boosted by the weak dollar and rising commodity prices, are proving themselves tempting to bullish investors," said David Jones, strategist at IG Index. Drugmakers were also in demand, with AstraZeneca and GlaxoSmithKline up 0.4 and 0.2 percent respectively.
Among other individual stocks, accountancy software firm Sage Group gained 3 percent after reporting in-line results, with Deutsche Bank repeating its "buy" recommendation on the stock. Vodafone added 2.2 percent as Credit Suisse hiked its target price to 160 pence from 150 pence based on the broker's view of a recovery in Europe. Oil services firm Amec rose 2.2 percent as Evolution Securities upped its rating to 'buy' from 'add'.
Banks retreated from a rally in the previous session, with Royal Bank of Scotland, HSBC, Lloyds, and Standard Chartered off 0.5 to 2.1 percent. Britain's Treasury looked set to clash with institutional investors in Royal Bank of Scotland after it took control of the bank's bonus pool, the Times reported. A cautious note from Credit Suisse on the UK banks also weighed on the sector.
Energy stocks tracked lower crude prices, which fell below $77 a barrel. BG Group, BP and Royal Dutch Shell shed 0.2 to 0.8 percent. Cairn Energy fell 2.6 percent as Citigroup cut its target price to 2,735 pence from 3,745 pence. Among individual fallers, Severn Trent fell 1.8 percent, as the stock traded ex-dividend on Wednesday.
Overall, ex-dividend factors took 2.39 points off the index, with AB Foods, Johnson Matthey London Stock Exchange, National Grid and SABMiller all losing their payout attractions. In a brightening outlook for stocks, brokers UBS and ING were optimistic for the prospects for European equities in 2010, citing an upturn in the economic cycle, but both said defensive sectors would outshine cyclical sectors like technology and financials.