FTSE 100 ends up following mixed reactions to the cuts

Britain’s top share index closed higher yesterday, led by miners on the back of firmer metals prices, with investor sentiment buoyed by positive corporate earnings releases from the United States.

The market reaction to the government’s spending review was muted.

The FTSE 100 ended up 25.04 points, or 0.4 per cent, at 5,728.93, having closed 0.7 per cent lower at 5,703.89 on Tuesday.

Miners rebounded after a steep decline in the previous session when China, the world’s biggest consumer of metals, surprised markets by announcing its first interest rate rise since 2007, a move designed to rein in a booming economy.

Advances in key metals prices underpinned the gains, with copper, aluminium and nickel adding 0.8 to 2.4 per cent as the dollar dipped.

Global miner Rio Tinto rose 2.7 per cent after it approved a $3.1bn iron ore expansion to meet booming demand from Asia.


Peer Xstrata was one of the FTSE’s top risers yesterday, gaining 3.4 per cent on announcing its expansion in South Africa.

US stocks rose more than 1 per cent by London’s close, as investors cheered positive third-quarter earnings from firms including Boeing.

“Traders are piling back into equities after better-than-expected earnings from the US. Yesterday’s sell-off feels like investors were nervous, rather than the end of the rally,” said Joe Rundle, head of trading at ETX Capital.

Chancellor George Osborne gave details of the harshest government spending cuts in decades, taking an axe to the welfare state in an effort to reduce a record budget deficit.

And the Bank of England’s nine-strong Monetary Policy Committee split three ways as expected in October, with one member wanting more stimulus, another repeating his call for a rate hike and the rest voting for no change.

“A pretty muted response all round in terms of any real reaction to the comprehensive spending review, or even the Bank of England minutes,” said Henk Potts, markets strategist at Barclays Wealth.

“Investors continue to have a very difficult balancing act between what still looks like a relatively bright outlook for the rest of this year in terms of the corporate picture, and what is clearly a darkening macro picture, specifically into the second half of this year and into 2011,” he said.

Banks lagged the broader market, with traders pointing to Osborne's pledge to seek the “maximum sustainable” revenue from the finance sector, including a long-flagged levy on banks that the industry had lobbied heavily to minimise.

A surprising third-quarter loss from US peer Morgan Stanley also weighed on sector sentiment.

Autonomy was the top FTSE 100 riser, up 4.2 per cent, extending gains made on Tuesday when the software firm accompanied third-quarter results with an upbeat outlook, as Goldman Sachs and Nomura repeated “buy” ratings on the stock.

Smith & Nephew rose 3.2 per cent, with traders citing a positive read-across from results on Tuesday from the orthopaedic products firm’s US peers Stryker Corp and Johnson & Johnson.

Smiths Group, BSkyB and BAE Systems fell after going ex-dividend.

Smiths and BAE Systems have been hurt by the UK defence cuts announced on Tuesday.