Miners, banks boost FTSE in light trade

The London Stock Exchange building is seen in central London September 24, 2009.

LONDON (Reuters) - The FTSE 100 advanced on Tuesday in light trade, led up by miners and banking stocks, as investors speculated as to how euro zone policy makers would tackle the region's debt crisis.

The FTSE 100 .FTSE ended up 33.15 points, or 0.6 percent, at 5,857.52, having shed 0.5 percent on Monday, in volume at around 60 percent of the 90-day daily average.

Cyclical mining stocks .FTNMX1770 and banks .FTNMX8350, big fallers in the previous session, were the standout gainers on Tuesday, up 2.3 percent and 1.5 percent respectively.

"I think the appetite for risk is still out there, even though volumes are fairly thin. Every dip seems to be seen as a buying opportunity - that's why the indices are near multi-year highs," Manoj Ladwa, head of trading at TJ Markets, said.

Conjecture continued as to whether the European Central Bank was preparing to cap the borrowing costs of troubled sovereign borrowers.

Traders cited an article in London's Daily Telegraph again raising the prospect that the ECB was drawing up detailed plans to put a hard cap on Spanish and Italian bond yields.

An initial report in German weekly Der Spiegel on the potential bond-buying strategy of the ECB was played down by bank officials on Monday.

The FTSE 100 has jumped around 6 percent since late July when ECB President Mario Draghi said the bank was prepared to do "whatever it takes" to save the euro, sparking expectations of bold measures to help lower the borrowing costs of debt-stricken Spain and Italy.

On September 6, the ECB may spell out at its monthly policy meeting exactly how it could intervene in the bond market if asked, and many investors are likely to remain on the sidelines until they get some clarity on the situation.

"Equities are being blown around on thin volumes - something which looks set to remain until Draghi unveils his master plan in early September," Mike McCudden, head of derivatives at Interactive Investor, said.

SENTIMENT HELPED

Commodities trader Glencore (GLEN.L) reversed early losses, ending the session up 1.8 percent, after posting a smaller than expected drop in first-half earnings, while sticking to its guns on a $30 billion bid for miner Xstrata XTA.L.

The bid is not a "must-do deal", Glencore chief executive Ivan Glasenberg said on Tuesday, in the company's strongest yet warning that it will not yield to rival shareholder Qatar's demands for a higher price.

"Better than expected results from commodities business Glencore are helping sentiment in the sector - though the ongoing wranglings over the proposed Xstrata takeover are still making some investors wary of committing until the deal is resolved next month," Rupert Osborne, futures dealer at IG Index, said in a note.

Xstrata shares were up 2.1 percent after big falls on Monday.

Insurers also saw good demand, helped by bullish comment on the European sector from JPMorgan Cazenove, which said that some of the industry's major stocks are looking oversold and the sector offered an attractive dividend yield.

European insurance companies currently offer an average dividend yield of around 6 percent, more than the average 4 percent yield for the broader pan-European STOXX Europe 600 index .STOXX, according to Thomson Reuters StarMine data.

JPMorgan singled out Aviva (AV.L) in the UK as being "oversold" on concerns over exposure to Europe's sovereign debt crisis. Aviva shares gained 2.8 percent.

(Reporting by Tricia Wright, editing by Tim Pearce)