FTSE touches three week highs on back of Rio pledge and US hopes

BRITAIN’S FTSE 100 scaled three-week highs yesterday, cheered by promises of spending cuts at miner Rio Tinto and by growing hopes of achieving a US budget deal to avoid recession in the world’s biggest economy.

The US ‘fiscal cliff’ of some $600bn in spending cuts and tax hikes that is otherwise due to come into force in 2013 has overtaken the Eurozone crisis as the top concern for investors. US House of Representatives Speaker John Boehner sparked a rally in global risk assets after he voiced optimism on Wednesday that a compromise could be reached.

President Barack Obama added to the positive mood, saying he hoped to get a deal done in the next four weeks.

“The general mood of the market is reasonably positive,” said Neil Marsh, strategist at Newedge. “There is probably going to be a little bit of volatility surrounding the ‘will they, won’t they’, but ultimately they will – they have to ... If they don’t come up with a deal, what will happen not just to the US economy but the world economy is unthinkable.”

The FTSE 100 closed up 1.2 per cent, or 67.02 points, at 5,870.30, hitting levels last seen on 7 November and heading for its sixth straight month of gains.

From a technical point of view the index is likely to face tough resistance around the 5,930 area, where it has run out of steam three times in as many months.

Miner Rio Tinto, the 10th-biggest stock in the FTSE 100, added 5.1 per cent, after setting out clear plans for operational cost cuts and voicing guarded optimism on demand from key market China.

The FTSE 350 mining sector added 3.1 per cent, boosted by Rio.