Strength in miners and financials outpaced falls in defensives as Britain's FTSE 100 rose on Friday, extending the previous session's propitious gains, as the risk-on trade prevailed after weak US jobs data heightened the prospects for more economic stimulus.
London's blue-chip index closed 17.46 points higher, or 0.3 percent, at 5,794.80, having added 2.1 percent on Thursday after ECB president Mario Draghi sparked a risk-on trade frenzy when he announced the launch a new and potentially unlimited bond-buying programme to lower struggling euro zone countries' borrowing costs and draw a line under the debt crisis.
--- Miners lifted on China infrastructure deal
--- Risk on trade continues after ECB bond plan
The rise in sentiment brought healthier volumes back to market too, albeit from heavily depressed levels, with the FTSE 100 trading 160 percent of its 90-day average. The thirst for riskier assets such as miners and banks continued on Friday after weak US non-farm payrolls set the stage for the Federal Reserve to pump additional money into the sluggish economy next week.
"(The jobs data) puts QE3 firmly back on the agenda," James Knightley, senior economist at ING Financial Markets. "Today's report suggests that the economy isn't strengthening so certainly builds the case for QE, perhaps open-ended," he said. The expected flood of support for the economy, particularly for the euro zone, has taken some of the downside risk of waning growth out of the investment case for safer assets.
"It eliminates some of the uncertainties over global growth, illuminates the prospects for earnings and equities, while the need to run to safety and flight to quality is greatly diminished," said Mike Lenhoff, the chief strategist at Brewin Dolphin Securities. Miners, which had their best day on Thursday since Draghi's late July announcement that the ECB would do what it takes to save the euro, were the best-performing sector again, rising 4.1 percent.
Evraz led the gainers, jumping 14.8 percent as the Russian steelmaker extended its rebound from record lows, although it remains the second-worst performing stock on the index in 2012. China boosted optimism within the sector, after the world's hungriest consumer of raw materials gave the green light for 60 infrastructure projects worth more than $150 billion as it looked to energise an economy mired in its worst slowdown in three years, fuelling expectations that the world's growth engine may get a lift from the fourth quarter.
Xstrata rallied 3.6 percent after commodity trader Glencore raised its offer for miner to 3.05 new shares for every Xstrata share, up from 2.8, to salvage a bid - now worth about $37 billion - that had appeared to be heading for the rocks after Xstrata shareholder Qatar held out for more.
"We feel this new deal has a more honest feel to it ... With 46 percent of the register (Glencore plus Qatar) likely to support the revised terms a successful offer for the company seems assured," Liberum Capital said in a note. Glencore was the blue-chip index's top faller, down 3.6 percent.
Apart from Glencore, the other main fallers were perceived defensive stocks such as Imperial Tobacco, drinks firm Diageo and drugmaker GlaxoSmithKline, which fell up to 2 percent. The more positive tone set by the ECB and the US data kept investors' fire burning brightly for riskier assets such as financials with the likes of interdealer broker ICAP and UK-lender Barclays up 6.2 and 6.9 percent, respectively.
Barclays rose after Deutsche Bank raised its rating on the UK bank to "buy" from "hold" on valuation grounds and supported by the stability it sees provided by the appointment of the new management and the ECB's bond-buying plans. The bank says Barclays is inexpensive on 4.3 times 2013 earnings and 0.5 times tangible net asset value ratio.