Commodities and banks lift FTSE but gains are tempered by Fed QE decision

Miners led Britain’s top shares higher yesterday, boosted by strong data from China, but gains were tempered as investors looked ahead to the outcome of the US Federal Reserve’s meeting tomorrow.

Miners rose after data showing demand in China, the world's biggest consumer of metals, was holding up.

The world’s biggest integrated zinc producer Xstrata topped the FTSE leaderboard, up 3.7 per cent, supported by strong metal prices as the dollar weakened on the prospect of more quantitative easing from the US.

The FTSE 100 closed 19.46 points, or 0.3 per cent, higher at 5,694.62, having fallen 1.2 per cent last week. It earlier touched an intraday high of 5,733.01.

“Today’s movements though are indicative of how apprehensive investors are this week as there are so many uncertainties until key economic releases are out and the US mid-term elections are over,” Angus Campbell, head of sales at Capital Spreads, said.

Worries over how much cheap money the Fed might pump into the system to boost growth heightened after some upbeat economic data from the US, although it was probably too little, too late to stop the Federal Reserve from more monetary easing.

The pace of growth in the US manufacturing sector quickened unexpectedly in October, while US construction spending rose unexpectedly in September as investment in public projects touched the highest level in more than a year.

Earlier, a survey of purchasing managers showed British manufacturing growth accelerated last month, all but ending any hopes that the Bank of England would extend its own QE programme before the end of 2010, traders said.

Banks gained with traders citing a note from Macquarie in which the broker repeated “outperform” ratings on HSBC, up 0.9 per cent, ahead of a third-quarter trading update on 5 November.

Lloyds Banking Group, scheduled to issue a trading update on Tuesday, added one per cent, while Royal Bank of Scotland rose 2.2 per cent ahead of its update on Friday.

Technology firm Smiths Group advanced 3.4 per cent, making them among the top risers in the FTSE 100, with traders citing a heightened security alert after two bombs were found on US-bound planes.

Serco Group dropped 4.4 per cent after weekend newspaper reports about a letter the firm sent to suppliers seeking a 2.5 per cent rebate on the 2010 full year spend, with Numis cutting its rating to “reduce” from “hold”.

“On a current year price earnings of over 18 times there is no room for errors which tarnish the group’s reputation,” Numis said in a note. Weir Group shed 1.4 per cent after the engineer issued a trading update. Retailers Next and Marks & Spencer fell two and 1.7 per cent ahead of results.