LONDON (Reuters) - The top share index touched a three-week high on Tuesday, with cyclical stocks rallying on the back of an improving U.S. economic outlook and expectations of more stimulus from China.
The blue-chip FTSE 100 index extended earlier gains to set its highest level since March 12 after data showed U.S. factory activity accelerated for a second straight month. The index closed up 0.8 percent at 6,652.61 points.
The UK banking index rose 1.2 percent, the top sectoral gainer, while miners advanced 1 percent on expectations that China, the world's biggest metals consumer, will announce more measures to prop up its economy.
Global diversified miner Rio Tinto rose 1.1 percent and Vedanta Resources advanced 0.9 percent.
"Mining is a very healthy area of the market. Anything that takes away some tail risk on the Chinese activity side and provokes a new stimulus package will certainly help to reassure the market," said Ian Richards, global head of equities strategy at Exane BNP Paribas.
A string of weak economic data from has lent support to a view the Chinese government will try to boost demand, and premier Li Keqiang said last week Beijing could act to support infrastructure investment.
BHP Billiton, up 2.1 percent, led the mining sector higher on news that it was considering options to simplify its portfolio of assets, including a possible spin-off of unwanted operations like aluminium and nickel into a separate company.
"For those investors looking to increase their exposure to more cyclical parts of the market, we believe the mining sector offers a number of attractive stocks," said Paul Kavanagh, director of market research at Killik & Co.
"Although uncertainty over the outlook for economic growth in China, the main buyer of many commodities, provides a near-term headwind, we believe the decisions from the Chinese government ... reduce the likelihood of a sudden economic downturn."
Among other sharp movers, Aberdeen Asset Management rose 6.7 percent to be the top percentage gainer on the FTSE 100. Investors welcomed cost cuts at the asset manager and a slowdown in the pace of outflows, confounding hefty bearish bets on the stock.
Markit data showed the stock was heavily "shorted" by speculative investors in recent months in anticipation of poor results.
Charts signalled more gains, with analysts saying the FTSE 100 could move up towards the top end of a range, between 6,400 to 6,800 points, it has been trapped in since late October.
"In the short-term, a potential break above 6,655 - which marks the convergence of the 50-day moving average with a short-term bearish trend line - could see the index squeeze higher towards ... 6,755 or 6,885," FOREX.com technical analyst Fawad Razaqzadaat said.
Additional reporting by Tricia Wright; Editing by Catherine Evans