UK Stocks : FTSE 100 up 2.7 pct

Written by Agencies | London | Updated: Aug 31 2011, 06:55am hrs
UK Stocks Closing : Britain's top shares advanced on Tuesday, playing catch-up with Europe after a long holiday weekend, led by miners and banks as brokers argued that the recent stock market sell-off has thrown up bargains in the two sectors.

JPMorgan highlighted opportunities among miners following their poor performance in August, seeing rewards for those prepared to buy exposure to emerging markets which it thinks will start to outperform again.

Miners on which the broker has an overweight rating and have more than 40 percent emerging market exposure include Vedanta Resources , Anglo American and Xstrata , which added 7.3 percent, 6.3 percent and 4.7 percent respectively.

The FTSE 350 Mining index has dropped almost 13 percent in August, set for its biggest monthly rout since October 2008 when panic swept through financial markets after the collapse of U.S. investment bank Lehman Brothers.

Analysts at Deutsche Bank, meanwhile, talked up the banking sector's attractions on valuation grounds.

Royal Bank of Scotland led the sector higher, up 8 percent, as Deutsche Bank raised its rating on the stock to buy. Barclays , the broker's top pick in the sector, firmed 6.7 percent.

Among individual stock movers, automotive parts maker GKN added 4.8 percent after Nomura lifted its rating on the firm to buy from reduce.

We think that to what extent there was a mid-cycle slowdown at GKN, it appears to be over. We now see a strong structural growth outlook at a reasonable valuation, Nomura said.

The UK benchmark index ended 138.74 points, or 2.7 percent, higher at 5,268.66, although other euro zone markets retreated as weak demand at an Italian bond auction hit sentiment.

The FTSE's really only gaining the benefit of yesterday's European rally, Peter Dixon, economist at Commerzbank, said.

Hold fire; I think investors will probably demonstrate caution over the weeks to come and I wouldn't be surprised if we see a lot more volatility.

Investors drew some strength from news of tie-ups. U.S. oil company Exxon and Russia's Rosneft signed a deal on Tuesday to develop oil and gas reserves, and Greece's Alpha and EFG Eurobank , on Monday, sealed a merger.

But economic data continued to throw up concerns about growth prospects, with U.S. consumer confidence crumbling in August to its lowest level in more than two years. U.S. blue chips were flat by London's close.

And on this side of the Atlantic, investor sentiment in Britain's stock market has fallen to its lowest level since December 2008, as worries about high inflation and market volatility grow, a survey has found.

There are a few positive signs but there is still a long way to go to come out of this, Martin Dobson, head of trading at Westhouse Securities, said.

I wouldn't be surprised to see the market going better for a couple of days, but I think then reality will probably hit home and there will be a fall back to probably nearer the 5,100 level on the FTSE.

That reality, he said, will likely become more apparent with further economic data, perhaps in the shape of Friday's U.S. August jobs report.