Britain's benchmark share index rose on Friday as traders bought mining stocks which had fallen sharply in previous sessions, although worries that central banks may inch away from launching new stimulus for the economy favoured more defensive equity sectors.
The blue-chip FTSE 100 index was up by 0.7 percent, or 39 points, at 5,758.45 points, ending a four-day losing streak that had seen the index fall by around 6 percent.
Mining stocks dominated the leaderboard, with Glencore and Kazakhmys rising by 2.9 and 3.1 percent respectively.
Shares in Glencore's planned merger partner Xstrata also rose 2 percent, after both stocks had fallen 3 and 2.5 percent respectively on Thursday on the back of objections from some investors to the terms of their merger deal.
Investors picked up mining stocks in case a speech by US Federal Reserve head Ben Bernanke on Friday gives out more signals of measures to help the economy, such as quantitative easing, which would boost economically-sensitive shares such as the miners.
“People are bottom fishing around the miners. They are high-beta stocks, which means that if the market goes higher, they will go higher first,” said JN Financial senior trader Adrian Redmond.
However, Redmond said he did not expect any fresh monetary steps to stimulate growth in the immediate future, from either the Fed or the European Central Bank (ECB), which has a series of meetings in September to deal with the euro zone debt crisis.
TOO EARLY TO BUY CYCLICAL STOCKS
Brown Shipley fund manager John Smith also said he did not expect an immediate launch of new action to fight the global economic slowdown, leading him to favour more “defensive” equity sectors such as healthcare or food companies.
Smith favoured stocks such as drinks group Diageo, healthcare company GlaxoSmithKline, consumer goods group Unilever and utility National Grid over the miners at present.
“We are of the opinion that there will be some more QE (quantitative easing) but we don't see it in the short term. We've sat on the sidelines. It's a little bit too early to be aggressively buying cyclical stocks such as the miners,” he said.
Slightly stronger than expected US economic data over the past two weeks has helped cool expectations of fresh quantitative easing by the Fed in the near term.
Around 44 percent of investors in a Reuters poll published on Thursday expected the central bank to embark on a third round of bond purchases by end-2012, down from 70 percent in a similar poll last month.
The FTSE 100 could move around 1.5 percent in either direction depending on how Bernanke's speech pans out, added James A. Hyerczyk, an analyst at Autochartist. - Reuters