LONDON (Reuters) - Mining stocks helped main share index rise on Wednesday on expectations of stronger demand from China, offsetting lingering concerns about the U.S. and European economies.
Miners added 1.8 percent after the head of China’s Communist Party said the world’s largest consumer of metals will approve policies targeted aimed at helping the economic recovery.
Britain’s FTSE 100 closed up 23.04 points, or 0.4 percent at 5,892.08 points, with miners adding 11 points to the index and contributing six of the seven top gainers in percentage terms.
Also boosting the index was supermarket Tesco, which rose 3.3 percent in volume of more than three times the daily average, after unveiling a solid third-quarter trading update and launching a strategic review of its money-losing United States chain Fresh & Easy.
The FTSE has failed to push above resistance at 5,900 three times in the past week, in a sign appetite for equities is capped as investors fret about fiscal negotiations in the United States and Spain’s ongoing debt issues.
“The FTSE will not make its break up through resistance at around 5,900 in the next day or two but is likely to do so after that,” Trevor Neil, portfolio manager and technical analyst at BETA Group.
“More pause is needed for it to gather strength for this important break. When the break up through 5,900 finally comes we can expect enormous energy to be released, indicating a fairly quick move up of 400-500 points, possibly with little interruption.”
Traders said the main catalyst for a rally in the FTSE was an agreement on the U.S. “fiscal cliff”, a $600 billion (372 billion pounds) package of tax hikes and federal spending cuts that would begin January 1 and could push the world’s largest economy into recession.
Strategists, who adopt a longer-term approach, were generally confident that an agreement on the fiscal cliff would be reached, underpinning the U.S. economic recovery and contributing to a mostly positive 2013 for European equities.
“We expect some agreement to be reached and a muddle-through scenario in the U.S.,” Robert Parkes, a strategist at HSBC, said.
Parkes has a 6,500 target for the FTSE to the end of 2013 and sees a 10-15 percent upside for European indices.
He expected equities to benefit from more stable financial conditions thanks to monetary intervention from central banks, which he expected to fuel a re-rating in the stocks that have been most exposed to the debt crisis such as banks.
Euro zone concerns took some shine off the FTSE on Wednesday after struggling Spain failed to place the full amount of bonds on sale at an auction.
In a show of how the euro zone crisis is affecting UK-listed stocks, shares in Sage Group fell 3.5 percent in volume one and a half times the average after the software company said tough conditions for small businesses in France and Spain would drag on growth in 2013.
With little progress being made on the political front and the holiday season approaching, trading volume on the broader FTSE 100 was thinner, at 86 percent of the full-day average.
Reporting By Francesco Canepa; Editing by Hugh Lawson