Drugmaker deals buoy FTSE despite dragging miner shares

DRUGMAKERS helped Britain’s top share index rise modestly yesterday, buoyed by deal activity in the United States, as traders mooted the possibility that a recent equity rally may falter.

Miners hampered the FTSE 100’s progress though, hurt by easing metals prices on renewed fears about demand, with Rio Tinto off 1.6 per cent on talk that the miner was lining up a bid to buy US aluminium producer Alcoa.

Neither Rio Tinto nor Alcoa would comment on the rumours.

The UK blue-chip index ended 12.98 points, or 0.2 per cent, firmer at 6,082.88. The index has risen nearly 3.8 per cent since its April lows.

“The recent rally appears to be running out of steam around this year’s highs at 6,105,” Michael Hewson, market analyst at CMC Markets, said.

“Until such time as we see a close above this resistance area, the FTSE will remain susceptible to pull backs towards the 5,800 area,” he said.

Drugmakers were boosted after Israel-based Teva Pharmaceuticals unveiled a $6.8bn deal on Monday to buy US Cephalon.

AstraZeneca was among the top FTSE 100 risers, up 2.4 per cent, recovering its poise after a 3.5-per cent drop on Thursday when it reported first-quarter results, with Citigroup saying the numbers are “not as bad as (the) market implies”.

Observers said that investor confidence, recently aided by solid corporate earnings from both sides of the Atlantic, may be sapped by macroeconomic fears in the near term, although any weakness could be seized upon as a buying opportunity.

“A number of macro factors could trigger investors to try and book profits; oil price, concern about inflation, worries about overheating in emerging markets, the US debt position,” Henk Potts, market strategist at Barclays Wealth, said.

“(However), long term, the outlook remains very strong (and) equity markets remain our preferred asset class,” he added, seeing the best prospects in cyclical stocks, with industrials and technology his top picks.

Weakness was seen on the high street, as data from the Confederation of British Industry highlighted the grim outlook facing retailers. Next, scheduled to issue a trading update on Wednesday, fell 0.7 per cent, while Marks & Spencer dipped 0.9 per cent.

ITV which relies on advertising from the retailers, fell 2.2 per cent.

Smiths was the biggest laggard, off 5.7 per cent, after the technology firm said the head of its detection unit would step down immediately, as trading at the airport security business fell short of the board’s expectations.

Man Group, meanwhile, topped the blue-chip leader board, up 3.3 per cent, as the hedge fund unveiled a $1.5bn fund in Japan, its biggest product launch since the financial crisis.

In Europe, the FTSEurofirst 300 index closed 0.5 per cent lower at 1,150.81 points, ending a two-week rally during which it gained about 4 per cent. Miner Xstrata fell 2.4 per cent while oil major Total shed 0.7 per cent, as commodity prices retreated on renewed worries over demand.