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Commodity stocks fuel FTSE gains; banks weak

Published 12/07/2010, 04:19 AM
Updated 12/07/2010, 04:24 AM
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* FTSE 100 gains 0.4 percent, touches three-week high

* Miners, energy gain, banks dip on euro zone debt worry

* Tesco gains as sales rise

By Simon Falush

LONDON, Dec 7 (Reuters) - Gains in miners and energy stocks, bolstered by higher metal and crude prices, powered a slight gain for Britain's top shares on Tuesday, while Tesco was lifted by strong sales.

However strength was kept in check by persistent worries about the euro zone debt crisis which dented banks, while the possibility of Chinese interest rate rises also added to investor caution.

By 0906 GMT, the FTSE 100 was up 24.97 points or 0.4 percent at 5,795.25 after it ended 0.5 percent higher on Monday at its highest closing level since Nov 15.

Energy stocks provided the biggest single support to the index, as the price of crude held near $90 per barrel. BP gained 1.2 percent.

Mining stocks also gained ground on the back of strength in the price of raw materials, with copper hitting a record and silver striking a 30 year high. Fresnillo, which mines silver, added 1.5 percent.

But gains overall were muted as the euro zone debt worries stayed in focus.

After a five-hour meeting, the bloc's finance ministers said late on Monday they would be taking no new measures to tackle the contagion, saying the existing emergency fund was sufficiently big and that a proposal for euro zone bonds had not even been broached.

Investors were also braced for Ireland's budget vote. Prime Minister Brian Cowen is expected to get his fiscal plan through parliament and avert the risk of a snap election.

"There's no sense of agreement and there are worries that if Ireland doesn't pass the bill, that could lead to further bickering and push back any solution," said Michael Hewson, analyst at CMC Markets.

BANKS DIP

Banks, which are sensitive to problems in the europ zone's finances, were the biggest drag on the index. Barclays fell 1.2 percent while Standard Chartered fell 0.8 percent.

China is likely to raise interest rates in the coming days in a demonstration of the government's resolve to tame inflation, an official newspaper said on Tuesday. This is also seen as a factor that could keep risk appetite in check.

On the domestic data front, British retail sales growth slowed in November, as consumers proved reluctant to splash out on expensive items at a time of public spending cuts and higher taxes, a survey showed on Tuesday.

The British Retail Consortium said sales values were 0.7 percent higher than a year ago on a like-for-like basis. Total sales, which include new floorspace, were 2.8 percent higher.

One retailer who seemed to be faring well despite tough economic conditions was Tesco which gained 1.6 percent after the supermarket group said overseas markets drove a 7.2 percent rise in third-quarter sales.

Elsewhere on the macroeconomic front, British October industrial and manufacturing output numbers will be released at 0930 GMT.

U.S. October consumer confidence and ISM manufacturing and non-manufacturing semi-annual economic forecasts will be unveiled at 1500 GMT. (Editing by Hans Peters)

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