THE FTSE 100 share index hit a one-week closing high yesterday after bumper Chinese trade data boosted miners, although analysts said sentiment could be soured if Beijing opts to tighten its monetary policy.
China’s April consumer price inflation index, due today, is expected to have dipped from March’s 32-month high of 5.4 per cent to 5.2 percent.
“Given the comments by the People’s Bank of China about making inflation the number one priority, if it continues to remain above 5 per cent, I think we’re going to have to think about further tightening this weekend,” Michael Hewson, market analyst at CMC Markets, said.
“That could weigh on risk appetite going forward,” he said.
The FTSE 100 ended up 76.20 points, or 1.3 per cent, at 6,018.89, its highest close since May 3, having dropped 0.6 per cent on Monday.
Mining stocks added the most points the FTSE 100 after China posted its largest trade surplus in four months in April.
Rio Tinto was the best off, up 2.4 per cent, as RBS initiated coverage on the stock, alongside Anglo American and BHP Billiton, up 1.3 and 1.8 per cent respectively, with a “buy” recommendation.
The broker named Rio Tinto its top pick among the miners, ahead of Anglo American and then BHP Billiton, anticipating record earnings from the sector again this year.
Banks also bounced back on expectations of a deal to solve Greece’s debt crisis, recovering from a decline in the previous session when they gave up a legal fight over compensating consumers for mis-selling loan insurance policies.
Fund management group Schroders climbed 5.6 per cent, buoyed by a Numis Securities upgrade to “buy,” with the broker saying a sharp fall in shares after first-quarter results this month was an overreaction.
Elsewhere, InterContinental Hotels added 3.9 per cent in heavy trading after the world’s biggest hotelier unveiled consensus beating first quarter profits.
Imperial Tobacco rose 3.1 per cent after the cigarette maker, whose brands include Lambert & Butler, Fortuna and Gauloises, announced a £500m share buyback, as it topped forecasts with first-half earnings growth.
“While a return to buybacks was widely expected, we think the early timing will be positive for the shares,” said analyst Martin Deboo at brokers Investec Securities.
Peer British American Tobacco firmed 1.8 per cent.
BG Group was among a handful of blue-chip fallers, down 1.6 per cent in heavy trading after the gas and oil producer’s first-quarter results missed forecasts, with Investec Securities cutting its 2011 EPS estimate for BG by 10 per cent.
Some money managers saw little on the horizon to rouse the FTSE 100 from its relative torpor, with the index having been stuck in a 250-point range since early April, from a low of around 5,858 to a high of just over 6,100.
“We’re coming towards the end of the results season now, which has been broadly positive, and I think attention will turn once again to macro factors... obviously fears of inflation in faster growing economies coupled with the uncertainty over the peripheral Europe situation,” said James Buckley, manager of Baring Asset Management’s £1.5bn pound pan-European equities fund.