Banks and miners push FTSE to its highest close in a week

FINANCIAL stocks and commodity companies pushed Britain’s top share index up for a third session by the close on Tuesday, as fears about a global economic slowdown abated and raw material prices gained.

The FTSE 100 ended up 74.45 points, or 1.4 per cent, at 5,350.55, its highest close in a week.

Miners were firmer, supported by metal prices that rose on expectations of strong physical demand and a weaker dollar.

Lonmin was the stand-out gainer, up 5.9 per cent, while Xstrata and Kazakhmys added 4.5 and 3.7 per cent respectively.

But BHP Billiton was the biggest blue-chip faller, down 2.4 per cent as it launched an unsolicited $38.6bn takeover bid for Potash, which was rejected as “grossly inadequate”.

The index fell 1.1 per cent last week and is still down over 8 per cent since fears on Europe’s government finances erupted in mid-April, and investors are still wary of making big moves into the market.

The index has surpassed its 200-day moving average of 5,340.04 but on very thin volumes, with the index trading at only around 62 per cent of its 90-day average.

Energy shares also performing well along with crude, which snapped a five-day losing streak to rebound above $76 a barrel.

Oil majors Royal Dutch Shell and BG Group rose 1.8 and 1.6 per cent respectively.

BP, however, fell 0.4 per cent as technical issues on Monday muddled the timing of its planned final kill of its blown-out Gulf of Mexico oil well.

Edinburgh-based Cairn Energy fell 1.4 per cent, shedding some of the previous session’s gains.

Vedanta Resources said on Monday it would spend up to $9.6bn acquiring as much as 60 per cent of Cairn India, in which Cairn Energy holds 62.4 per cent.

British consumer price inflation slowed in July but, as expected, remained above 3 per cent, slightly adding to the FTSE’s gains as concerns about the potential for higher interest rates dissipated.

Banks, which have been hamstrung by worries over the economic recovery in recent days, bounced higher with Barclays up 2.8 per cent.

But insurers were the centre of attention yesterday, with Aviva gaining 5.1 per cent and traders citing talk that French peer Axa may be interested in an approach. Axa and Aviva declined to comment.

M&A speculation on the sector resurfaced last week when Aviva rejected a £5bn bid from peer RSA Insurance Group.

Prudential, seen as vulnerable to an approach after it failed in its bid to buy the Asian assets of AIG, also added 5.1 per cent.

British Airways, up 2.3 per cent, led a clutch of travel-related firms higher after a threatened walk-out by airport ground staff was averted following last-ditch talks on Monday.

Travel firm TUI Travel gained 3.6 per cent and mid-cap peer Thomas Cook rose 2.9 per cent.