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FTSE closes up 2.3 pct; commods, banks lead surge

Published 10/06/2009, 12:02 PM
Updated 10/06/2009, 12:06 PM
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* Commodities strong; dlr weakness, U.S. comments

* Banks higher, helped by broker strategy upgrade

* U.S. firmer ahead of Q3 reporting season

By David Brett

LONDON, Oct 6 (Reuters) - Britain's top share index closed 2.3 percent higher on Tuesday, as heavyweight commodity and bank issues rallied on renewed hopes over the gathering pace of the global economic recovery, ahead of the third-quarter U.S. earnings season.

At the close, the FTSE 100 was up 113.65 points at 5137.98, after closing 0.7 percent higher on Monday.

"The FTSE has had a bumper session today after yesterday's strong performance in the US ... surging higher yet again as optimism returns ahead of the start of earnings season," said Jimmy Yates, Head of Equities at CMC Markets.

Indices responded to strong signals that the economic recovery was underway in Australia after the Reserve Bank of Australia raised its cash interest rate by 0.25 point to 3.25 percent.

Dollar weakness, following a report Gulf Arab states were in talks to replace the U.S. unit with a basket of currencies in oil trading, underpinned higher metals prices, which boosted the mining sector.

Gold hit a historic high during the session.

Fresnillo, Antofagasta, Eurasian Natural Resources, Rio Tinto, Kazakhmys and Xstrata put on 6-9.9 percent.

Energy stocks rose as crude prices rose above $71 a barrel, supported by the U.S. Energy Information Administration, which raised its outlook for world oil demand at the end of this year as the economy improves in China and other Asian countries.

Royal Dutch Shell, BP, Tullow Oil and BG Group added between 2.8 percent and 8.4 percent.

Banks finished strongly, buoyed by a BofA Merrill Lynch strategy upgrade of the sector to 'overweight', with HSBC, Standard Chartered, Barclays, Royal Bank of Scotland and Lloyds Banking Group adding 1.6-4 percent.

Investors also digested a 4.8 billion euro capital raising by French bank Societe Generale to enable it to repay state support and pursue growth opportunities.

A Citigroup upgrade to 'buy' from 'hold' helped Rolls-Royce , up 4.4 percent, with the broker hiking its target price for the engineer to 550 pence from 465 pence, saying it saw upside risk to estimates.

SHIRE/INSURERS FALL

Drugmaker Shire was among a handful of FTSE 100 fallers, off 1.7 percent, pressured by a UBS downgrade to 'neutral' from 'buy' on valuation grounds.

GlaxoSmithKline, however, rose 1.4 percent, boosted by support for its experimental kidney cancer drug Votrient.

Insurers Legal and General and RSA Insurance Group fell 1.3 and 0.6 percent, respectively, as traders banked profits following recent gains amid M&A speculation.

Investors shrugged off disappointing UK economic data.

Britain's economic recovery stalled in the three months to September, The National Institute of Economic and Social Research (NIESR) said.

The NIESR reported GDP was flat in the third quarter following a modest expansion of 0.1 percent in the three months to August, an outturn it described as disappointing.

British industrial output in August fell unexpectedly, and at its sharpest monthly pace since January, official data showed, dampening expectations for a strong rebound in growth in the third quarter of this year.

Wednesday sees Alcoa, the largest U.S. aluminium maker, unofficially kick off the earnings season. Third-quarter corporate earnings figures will give a clearer picture of the state of the economic recovery.

Yates said he sees the FTSE reaching between 5,400 and 5,650 on the back of strong third-quarter results, and he added: "Markets have pushed ahead beyond most people's expectations so far, so who's to say it won't do it again." (Editing by Simon Jessop)

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