Britain's top equity index recovered on Wednesday from a slump in the previous session, as rising oil prices led to gains by energy stocks. The FTSE 100 index, which had fallen 2.8 percent in the previous session, closed up 1.6 percent at 6,032.24 points. Oil prices stabilised on Wednesday as a decline in US inventories offset weak economic data from China. Energy groups such as BP and Royal Dutch Shell advanced.
"There's a bit of support coming through the oil price, which is acting as a trigger for the FTSE to reclaim some ground," said Hantec Markets' analyst Richard Perry. Airline IAG rose 4.8 percent, leading the index higher, after Morgan Stanley lifted its forecasts for IAG, saying that the company was its top pick in the sector. Easyjet, up 3.5 percent Brenda Kelly, head analyst at London Capital Group, said IAG looks set to be one of the main beneficiaries of lower fuel hedging costs.
The FTSE 100 reached a record high of 7,122.74 points in late April but has since fallen back. The FTSE 100 is down by nearly 10 percent since the start of 2015, hit by concerns over an economic slowdown in China and the prospect of an interest rate rise in the United States. Higher interest rates typically make bonds and cash more attractive than stock by increasing their returns. The China slowdown has hurt oil and metals prices, since China is a major global commodities consumer.
There were more signs of economic weakness in China on Wednesday after data showed that Chinese manufacturing activity unexpectedly shrank to a 6 1/2-year low in September. "Given the amount of bearishness ... particularly in respect to China, some of it has been vindicated to some extent today owing to the weak manufacturing number, but I do feel in some respects that was very much priced in to the market and there was a case of buying back in on the news," London Capital Group's Kelly said. Securequity sales trader Jawaid Afsar said he would look to sell out on rallies on the FTSE, given the China slowdown. The FTSE was still liable to fall back to last month's low level of 5,768 points, he said.