London Report: Bears point to China yet FTSE still edges up

BRITAIN’S top shares edged higher yesterday, tracking gains in US stocks but pinned back by miners after China’s factory activity dropped, while BAE Systems slid after forecasting a decline in earnings this year.

The FTSE 100 staged a late recovery, tracking Wall Street higher after strong US manufacturing data.

Basic materials stocks, including miners, exerted the most downward pressure, trimming six points off the index after data from China reinforced concerns of a minor slowdown in the economy.

Activity in China’s factories shrank again in February, a preliminary private survey found, spooking markets across the region.

“Economic growth in China is slowing still because of tight monetary policy, and it won’t change until they ease policy,” Gerard Lane, equity strategist at Shore Capital, said. “The pudding being eaten by the market at the moment is one that has been baking for quite a while. At the moment, China remains a negative story.”

Defence contractor BAE Systems sank 8.3 per cent in brisk trade after it cautioned that continuing US budget pressures could reduce earnings per share by five to 10 per cent this year.

BAE systems receives 44 per cent of its revenue from the United States.

“Awful headline figures from BAE Systems this morning,” said Jordan Hiscott, senior sales trader at Gekko Global Markets.

“As western governments withdraw their military assets and needs from deployments in Iraq and Afghanistan, defence cuts could become more prevalent in the sector - this is undoubtedly being highlighted in the figures this morning.”

Trading volume in BAE stood at nearly 400 per cent of its 90-day daily average, against the FTSE 100 of 112 per cent.

Among gainers, Vodafone contributed nearly 12 points of support to the index with a 2.5 per cent rise after Citigroup raised its target price on the stock to 290p from 260p.

The UK blue-chip index edged up 16.28 points, up 0.2 per cent, to 6,812.99 points by the close, taking its rally since an early February low to around six per cent.

This leaves the index just 0.8 per cent shy of a peak hit in late January, before political and economic concerns in emerging markets took their toll on equities. It is 117 points off the all-time high of 6,930, reached in the final year of the last millennium.