Economy fears hit oil, miners and banks but defensives fly

THE FTSE 100 closed 0.1 per cent higher yesterday, recovering only a small part of Monday&rsquo;s sharp falls as strength in defensive stocks was countered by falls in oils, miners, and banks.<br /><br />At the close the FTSE 100 was up 2.56 points at 4,328.57, rallying slightly after hitting a six-week closing low on Monday when it shed 2.6 per cent, after the market&rsquo;s risk appetite cooled and inflation factors came back into play <br /><br />The index has surged 25 per cent since hitting a six-year trough in March, but is still down 1.9 per cent for the year to date.<br /><br />Gains in defensive stocks including telecoms, pharmaceuticals, food retailers and tobacco stocks kept the blue chip index above water with investors looking to assets perceived as safe bets, as economic concerns resurfaced.<br /><br />Defensive favourite <strong>Vodafone</strong> added 1.6 per cent, while pharmaceutical giant <strong>GlaxoSmithKline</strong> and<strong> British American Tobacco</strong> both gained 0.7 per cent.<br /><br />&ldquo;This morning&rsquo;s UK inflation figures came in ahead of expectations, putting inflationary pressures back to the forefront of people&rsquo;s minds and keeping the brakes on a recovery from Monday&rsquo;s sell-off,&rdquo; said Mic Mills, a senior trader at spread betting firm ETX Capital.<br /><br />Inflation in Britain slowed much less than expected in May, supporting the view that the UK&rsquo;s struggling economy may be boosted by rising consumer spending.<br /><br />The Office for National Statistics said consumer prices rose 0.6 per cent on the month in May, taking the annual rate to 2.2 per cent from 2.3 per cent in April, but above analysts&rsquo; forecasts. <br /><br /><strong>BT Group</strong> was the biggest FTSE 100 gainer, up 8 per cent after Morgan Stanley upgraded the telecoms carrier to &ldquo;overweight&rdquo; and raised its target price.<br /><br /><strong>Tesco</strong> gained 1.5 per cent after Britain&rsquo;s largest retailer issued a solid trading update, posting an in-line 9.7 per cent rise in first-quarter UK sales.<br /><br /><strong>J Sainsbury</strong>, set to issue a trading update for the first quarter today, gained 1.1 per cent while supermarket chain Wm Morrison firmed by 0.6 per cent.<br /><br />Also on the high street, Argos owner <strong>Home Retail Group</strong> saw good demand, rising 1,7 per cent as HSBC anlaysts upped their rating to &ldquo;neutral&rdquo; from &ldquo;underweight&rdquo;.<br /><br />Weak oil majors were the biggest drag on the blue chips yesterday as an earlier recovery was reversed, although crude prices stabilised around the $72 level.<br /><br /><strong>BG Group </strong>lost 2.2 per cent while BP shed 0.2 per cent, and <strong>Royal Dutch Shell</strong> slipped 0.1 per cent.<br /><br />Miners were also big fallers, with the sector under pressure as metal prices stayed well below peaks set last week amid fresh demand fears.<br /><br /><strong>Rio Tinto </strong>was the biggest FTSE 100 faller, down 2.5 per cent after the firm said it expects weak commodity markets to continue to hit its bottom line as it launched a $15.2bn rights offer, the world&rsquo;s fifth-largest ever share issue.