A rally in commodities gives a rare fillip to the FTSE 100

A RALLY by hard-pressed commodity issues hauled Britain’s top share index higher yesterday as investors fished choppy waters for bargains after sharp falls in the past two sessions.

At the close, the FTSE 100 index was up 54.26 points, or 1.1 per cent, at 5,156.84, having hit a peak of 5,190.2 in the morning and reversed to a low of 5,086.7 in the afternoon.

“It was very choppy, but investors in London chose to ride a hard-fought rally by commodity issues today after the recent slide, although the sands could shift again at any time,” said Mic Mills, head of electronic trading at ETX Capital.

The UK blue-chip index shed nearly six per cent in the previous two sessions in response to poor US jobs data, downbeat global PMI economic data and worries over the euro zone debt crisis.

Beaten-down mining and integrated oil stocks led the bounce back, having so far experienced their worst year since 2008, the year Lehman Brothers collapsed.

Global miners Xstrata and Rio Tinto added 2.2 and 1.7 per cent, while oil major BP rose 2.3 per cent.

Whitbread was the top blue-chip gainer, up 7.3 per cent after the country’s biggest hotel and coffee-shop operator reported accelerating growth in quarterly sales.

“The UK consumer outlook may be stuttering, but there is no evidence of the malaise affecting Whitbread, which released an excellent trading statement,” Evolution Securities said.

Other defensively perceived issues also saw support, led by Imperial Tobacco and British American Tobacco, up 3.2 per cent and 1.7 per cent, while food retailer Tesco added 3.7 per cent.

Mobile telecoms heavyweight Vodafone also lent its considerable strength to the blue chips, rising 1.7 per cent as UBS added the stock to its European “Key Call” list.

Banks were higher as a sector after a choppy session, mainly thanks to gains by global heavyweight HSBC, up 0.9 per cent, while Lloyds Banking Group added 0.3 per cent.

But Royal Bank of Scotland and Barclays were the top two FTSE 100 fallers, down 2.8 per cent and 2.2 per cent, respectively, tracking falls by US financials.

Big US banks, in talks with state officials on settling claims of improper mortgage practices, have been offered a deal that could limit legal liability in return for a multibillion-dollar payment.

US blue chips were 1.9 per cent lower by London’s close as traders returned following the Labor Day holiday, catching up with drops by global markets on Monday.

Back in London, retailers suffered as Citigroup downgraded its sector rating to “neutral” and cut its earnings forecast for the sector in light of gloomy economic indicators.

Blue chip Marks and Spencer shed 0.2 per cent, while mid cap Halfords dropped four per cent as the broker cut its ratings for both of the high street retailers to “hold”.

Technical analysis of the FTSE 100 index suggests caution. “The UK market could still be looking at a fall of significant proportions from current levels, with an implied downside target of around 4,500. In the meantime, last month’s intra-session low, at 4,791, is going to be critical,” said Bill McNamara, technical analyst at Charles Stanley.