Miners lead FTSE higher on hopes of strong economic growth in China

BRITAIN’S top share index hit a one-week closing high yesterday as mining stocks jumped on market talk that China, the world’s biggest metals consumer, could report strong economic growth numbers today.

Economists polled by Reuters in March forecast that China’s GDP expanded 8.3 per cent in the first quarter of 2012 versus a year earlier. But several traders cited market talk of a nine per cent rise, prompting investors to snap up equities.

The UK mining index climbed 3.1 per cent, extending its recent rally, also helped by firmer copper prices , which rose further above technical support at $8,000 a tonne as worries over the global economic outlook eased.

Global miner Rio Tinto rose 4.5 per cent, Vedanta was up 2.9 per cent, while BHP Billiton gained 2.8 per cent. The sector helped the FTSE 100 index to finish 75.72 points, or 1.3 per cent, higher at 5,710.46 points, the highest close since 5 April.

“This speculation [on Chinese GDP growth] helped to increase near term demand for stocks whilst US trade data also boosted risk appetite,” said Joshua Raymond, chief market strategist at City Index.

The US trade deficit narrowed unexpectedly in February as exports hit a record high, imports from China and other key suppliers declined and oil import volume fell to the lowest in 15 years.

“A stronger than expected reading in Chinese GDP data would be hugely important for calming fears of a sharp slowdown in global growth. And considering much of the FTSE 100’s prospects are weighted in the performance of heavyweight mining stocks, the reading will play a strong role in how the FTSE 100 opens today.”

UK banks were also in demand, with a fall in Italian bond yields after clearing its latest round of auctions improving sentiment towards the financial sector. The banking sector suffered heavily last year as many banks were highly exposed to debt-laden peripheral Eurozone economies.

Banks rose 2.2 per cent, while Barclays was up 5.4 per cent. Lloyds gained 4.3 per cent as New banking venture NBNK made a fresh bid for 632 Lloyds bank branches.

Charts showed positive near term signs, after the FTSE 100 bounced back on Wednesday from a support level of 5,570, which provided a floor in January. “The index is set for a rebound. Its nine-day RSI (relative strength index) fell into the oversold zone yesterday and coincided with the support level,” said Julian McCormack, technical analyst at Brewin Dolphin.

However, Michael Jarman, chief market strategist at H2O Markets, remained cautious and said the rally in share prices was just a short-term technical bounce and due to encouraging US trade balance deficit figures. “I’m still fairly defensive and expect any short term moves to be short-lived.”

Among individual movers, autos and aerospace parts firm GKN topped the FTSE 100 risers’ list, up 6.2 per cent, as Credit Suisse upped its rating to “outperform” from “neutral”.

Its shares were also supported by a 49 per cent jump in British aerospace parts supplier Umeco after specialty chemicals maker Cytec Industries said it had made an offer valued at about $439m for Umeco.

Aggreko gained 3.1 per cent as the world’s biggest temporary power provider said underlying revenue had risen by more than 20 per cent in the first three months of the year, putting it on track for further growth in 2012. Aggreko’s trading volume was 2.5 times its 90-day daily average.

Royal Dutch Shell recovered to end 0.8 per cent lower after said a sheen discovered in the water near its offshore Gulf of Mexico oil wells was estimated to total about six barrels of oil and that its facilities showed no signs of leaks.