Commodities drive FTSE 100 higher as prices tempt buyers

COMMODITY stocks powered a bounce in Britain’s top shares by close yesterday, as heavy selling this week made equities look attractive from a technical perspective, with volatility set to persist.

The FTSE 100 index closed 97.88 points or 1.8 per cent, higher at 5,696.11.

It had fallen in each of the previous six sessions and the index is still down 4.3 per cent this month, with political unrest and violence across the Arab World and Japan's nuclear crisis keeping investors fearful.

“Volatility is horrendous,” said Neil Tong, head of UK equities at the £800m Alliance Trust.

“There are a lot of unknowns, risks have gone up, the investment backdrop has deteriorated further and there are headwinds ahead in terms of oil and gas prices.”

Energy stocks were strong gainers, benefiting from strength in the oil price, with Royal Dutch Shell up 2.4 per cent.

Credit Suisse raised its estimates and target prices across the global sector based on strong crude price forecasts.

Oil rose by around $3 as unrest in the Gulf and Libya heightened supply disruption worry and investors weighed the impact on energy demand from quake-hit Japan.

The FTSE 100 has had over £50bn wiped off its value in the slide since Japan suffered a devastating earthquake on Friday, which left the index looking oversold on a technical basis.

The index ended below its 200 day moving average around 5,611 on Wednesday and traders said other technical indicators pointed to the FTSE 100 looking cheap too.

“The FTSE at the moment is ridiculously oversold. RSIs (relative strength index) are running very low, signalling an oversold situation,” a London-based trader said.

Miners, seen as benefiting once Japan begins to rebuild, advanced against a backdrop of firmer metals prices. BHP Billiton rose 3.1 per cent.

Elsewhere, Vodafone climbed 2.6 per cent, boosted by an upgrade to “neutral” by Evolution after an investor day.

Meanwhile, on the downside, Insurer Legal & General fell one per cent to 110p after results which came in slightly below forecasts, against a 1.5 per cent rise for the European insurance sector.

MAN Group was top of a short list of blue-chip losers, down 2.1 per cent on high volumes. Its latest published figures showed its key AHL fund shed four per cent on 15 March.

“The weakness in recent days had pushed the UK index back to levels hit during the Irish sovereign debt crisis, after that the market rallied by more than 10 per cent over the subsequent months,” said David Jones, chief market strategist, IG Index.

However, Jones warned that investors remained jittery and said that it was unlikely markets would continue to rise from here on.

“Despite the strong rise seen today investors’ nerves are still on edge, and markets remain almost completely news-driven by what is happening with the Japanese nuclear plants and Libyan unrest. Until there is some form of resolution to both of these, it would be prudent to expect further bouts of volatility,” he said.