Market Report: Lonmin jumps on Xstrata interest rumours

The best was saved for last on the FTSE 100 this week as the index of leading shares closed higher last night following a week of steady, if not spectacular, falls. The market climbed 1.2 per cent to 4,851.7 yesterday, helped specifically by a cluster of improving mining companies that had yo-yo'd all week amid oscillating news about a variety of commodities.

Traders are expecting Monday to herald the real start of post-summer activity after the traditional phoney war that follows the August bank holiday. However, that did not stop shares in the world's third-biggest platinum miner Lonmin soaring by 9.4 per cent to 1,578p yesterday after speculation that the Anglo-Swiss group Xstrata will renew its interest in the company when regulatory restrictions fall away next month.

Xstrata took a 24.9 per cent stake in October last year, but dropped a full $10bn bid and blamed the economic downturn. For 12 months, it will be restricted by takeover regulations from making a new bid lower than the £33 a share it originally proposed.

"Xstrata has made no secret of its confidence in platinum group metals' fundamentals and its willingness to participate when valuations revert to normal ranges," Exane BNP Paribas said in a research note, upgrading Lonmin to "outperform" from "underperform". The jump in Lonmin's stock was probably muted as a result of Xstrata's effort to woo Anglo American's shareholders into accepting its "merger of equals" offer. Xstrata's shares nudged up 1.9 per cent to 833p.

The other big miners dominated the FTSE100 leaderboard. The London-listed Kazakh companies Kazakhmys, jumped 3.6 per cent to 982.5p. Eurasian Natural Resources Corporation, which was the index's biggest faller three days ago, was up 3.8 per cent at 826p. Both gained as experts at Morgan Stanley moved Kazakhmys from "neutral" to "overweight". The action followed a significant update from watchers at Citigroup on Thursday. The stocks have also been helped by strengthening metals prices and increases in the value of China-listed companies.

Insurance companies also had a good day, after a muted week caused by speculation about RSA's rumoured £1bn rights issue. Aviva (up 4 per cent at 402.6p), Legal & General (up 4.2 per cent at 70.9p) and Prudential (up 3.9 per cent at 544.5p) were all in the top 10 movers.

They regained some of the ground lost earlier in the week when the Association of British Insurers said the industry might be forced to raise up to £70bn of new capital to comply with new European Union regulations.

On Wednesday, analysts at Capital Spreads warned: "We might have come a bit too far, a bit too quickly."

Invensys, the software group, was also up 4.3 per cent at 285.9p. The climbs take the company closer to Bank of America-Merrill Lynch's new price target of 350p, which it predicted two weeks ago.

A handful of investors continued to back BP, which boasted of a new "giant" oil find in the Gulf of Mexico earlier in the week, with the stock rising 0.08 per cent to 536.9p. However, the upward momentum was muted by news that the company is planning to close for maintenance an ultracracker unit at one of its Texas refineries which produces 467,720 barrels of oil day.

The losers on the leading index were outnumbered yesterday but a number of household names were among the biggest fallers. However, the biggest faller on the FTSE 100 was BP's rival energy group Royal Dutch Shell which inched down 0.7 per cent to 1,640p amid reports that it was planning to shed 15 per cent of the workforce at its core exploration and production unit.

London's second division of shares, the FTSE 250, followed a similar pattern to the leading index, closing the day up 116 points at 8,720.8.

The housebuilders, led by Barratt Developments (up 6.4 per cent to 248.2p), were among the biggest winners as investor confidence gradually recovered. Credit Suisse said housing stocks looked attractive and could restore devastated returns in the long term, adding that the housing market was also displaying "encouraging momentum", boosting confidence among would-be homebuyers.

"We believe that the industry has not structurally altered and thus, in principle, see no reason why it should not return to historical levels of margins and returns, just as it did following the 1990s downturn," it said in a note. Ferrexpo, the Ukraine-based producer of iron ore pellets, closed the day up 7.1 per cent at 152.7p as it benefited from the upsurge in mining stocks seen by the bigger companies on the FTSE 100.

The Peru-based Hochschild Mining proved to the bête noire of the sector as it fell 3.4 per cent to 278.6p despite gold and silver prices growing.

In the small cap market, the Aim-listed Connemara Mining, an Irish zinc exploration group, was among the biggest winners. The group's shares jumped up by 48.4 per cent to 23p after it announced that the first drill hole of its 2009 programme had hit high-grade zinc-lead mineralisation.

The discovery is located just 1.5km from the miner's existing site, with Connemara hoping it has fallen on a potentially lucrative zone.