Britain's top share index pared earlier losses to close higher on Thursday, led by heavyweight mining stocks after data showing further improvement in the US labour market gave risk sentiment a modest boost. After sliding to a more than two-month low earlier in the session as investors closed positions ahead of a long weekend, the FTSE 100 rallied to close up 19.90 points, or 0.4 percent, at 5,723.67.
"The news flow relating to jobs has been pretty good, and consistent with a figure that could be a little better than expected tomorrow and that may be what lies behind the firmer tone towards the end of the session," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities. Weekly US jobless claims fell to their lowest level since 2008, boosting expectations for the crucial non-farm payrolls data due on Friday.
The beaten-down mining sector, which lost over 9 percent last month, spearheaded the end-of-session rally, gaining 1.8 percent and adding 11 points to the index - more than half the FTSE 100's session gain. Mining heavyweight Xstrata was one of the biggest gainers on the day, up 3.5 percent, while fellow miner Polymetal rose 4.1 percent. "If there continues to be decent news flow from the United States and China then that will be good for not just the miners, but also all the cyclical sectors," Lenhoff said. Economists polled by Reuters expect the US employment report will show the economy added 203,000 jobs last month, for a fourth straight month of solid job creation, marking the longest stretch of monthly employment gains topping 200,000 since 1999.
But offsetting that bullish backdrop, concerns over the ability of weaker euro zone countries to fund themselves have resurfaced. "The state of the euro zone seemed to have been swept under the carpet, but investors are beginning to realise that the situation hasn't resolved itself, so it's going to come back into play over the next month or so," Mark Priest, equities trader at ETX Capital.
That continued to weigh on European lenders, after large falls on Wednesday. UK banks Lloyd's and Royal Bank of Scotland were among the worst hit, down 1.5 and 1.0 percent, respectively. UK financials are currently trading on a similar price to earnings and dividend yield to the overall market, but they are considerably cheaper on a price to book value basis, Morgan Stanley said in a research note to clients.
The FTSE 100 dropped 2.3 percent on Wednesday - its steepest fall since mid-December, weighed by weak regional economic data and warnings from European Central Bank chief Mario Draghi on the outlook for the euro zone periphery. Index technicals corroborate the week's more negative tone, with prices capped by a declining trend line, Nicolas Suiffet, technical analyst at Trading Central, said in a note.
"As long as 5,760 is not penetrated, the risk remains to the downside towards... 5,631 (top of 12 of July 2011 price spike) in extension. Alternatively, a push above 5,760 would open the way to a technical rebound towards 5,842." Despite the focus on banking and mining companies, it was BSkyB that topped the losers' board, closing down 3.4 percent after the pay TV group confirmed it had authorised email hacking on two occasions.