Britain's top share index notched up a third week of gains and the highest close since mid-February after rising metals prices and deal-making boosted miners, with technicals pointing to further near-term upside. The FTSE 100 ended up 0.8 percent at 6,055.75 points and momentum indicators, including the relative strength index and moving average convergence-divergence, suggested the rally had further to run.
Volumes were low, at around two thirds of the index's 30-day average, with volatility in a tight range and many traders on the sidelines ahead of the weekend. "It's been very, very quiet today. Volatility has been very low and with not much in the way of fresh macroeconomic figures out to drive direction," said Michael Taylor, futures trader at Cantor Fitzgerald. Strength in mining shares underpinned the rally, he added, led by gains in the value of most metals - with gold at a record high, silver at a 31-year high and base metals such as copper also bullish.
Among the top winners from the metals price surge were leading integrated miners Anglo American and Xstrata, up 3.9 percent and 2.7 percent respectively, helping the heavyweight sector add 25 points to the index. Deal news added weight to the rally as Rio Tinto, up 3.1 percent, finally won control of Australian coal miner Riversdale Mining, after trying for months to sell the $4 billion deal to key shareholders. Peer Vedanta ended up 1.5 percent after posting strong quarterly production figures and reiterated its commitment to buying a majority stake in Cairn India, in spite of protracted delays on the part of New Delhi.
Among leading mining groups, Thomson Reuters StarMine data suggests Vedanta is one of the best relative valuation plays, including on a price-earnings basis, with a forward 12-months multiple of 5.7 against its 10-year average of 6.8. Technical analyst Nicolas Suiffet at Paris-based Trading Central said he remained bullish on mining stocks, with the STOXX Europe 600 Basic Resources index consolidating after a recent rally in a pattern that points to further gains.
The index remains supported by a rising 50-day moving average and has a support base at 611.5, all of which meant "a new up leg is on the cards", he said. The index ended up 1.5 percent on Friday at 620.88 points. Oil stocks were the second-biggest contributor to the index, adding 12 points after oil hit $125 a barrel in a rally buoyed by dollar weakness and supply fears, as a result of conflict in Libya and unrest elsewhere in North Africa and the Middle East. That, combined with economic growth fears as a result of the euro zone debt crisis and Japan's post-earthquake nuclear troubles, meant there was "an underlying level of nervousness in the market", said Simon Gergel, portfolio manager of the 93 million pound Allianz RCM UK Equity Income Fund.
"The most likely course of events is that the economy will continue to recover, but the risks are pretty significant in many directions, including inflation coming through from high oil prices," he said. "We're not that far away from interest rate rises in the UK, so it's a nervous recovery," he added.
UK factory gate prices rose in March, official data showed on Friday, adding weight to market expectations for a 25 basis point interest rate rise in July. Gergel said he had "taken some risk off" in recent weeks, particularly around real estate firms such as Hammerson on the back of a weakening outlook, but was looking to buy large, global firms such as Unilever on dips.