Market Report: Xstrata surges amid scramble for miners

Xstrata led the FTSE 100 higher last night, vaulting to pole position on the benchmark index amid a feeling that the worst of the commodities slump may have passed.

The hopes were sparked by broker Cazenove, which switched its stance on the mining sector to "overweight", citing the recent array of indicators that suggest the global economic slowdown may be moderating.

Specifically, the broker highlighted the recovery "noise" emanating from China, which is a consumer of industrial metals. Various economic gauges suggest the slowdown may have bottomed in November, following which there have been steady month-on-month improvements.

"Recent lead indicators in money supply and credit creation, not to mention iron ore and copper imports, point to an economy responding to the aggressive stimulus measures announced in October," Cazenove said, highlighting that, for a number of commodities, "China has been virtually 'the only game in town'."

The broker added that this trend should continue "if not accelerate" as the stimulus measures work their way around the Chinese economy.

The assessment emboldened traders, who have spent the last week banking profits as metals prices softened. Xstrata, which was more than 14 per cent or 75p stronger at 600p, was the biggest beneficiary of the shift in sentiment, while Kazakhmys climbed to 515.5p, up 8.2 per cent or 39p.

The scramble for stocks also helped Vedanta Resources, which, although rated "underperform" at Cazenove, climbed 6.1 per cent or 57p to 992p.

Overall, the miners took the FTSE 100 to 4,155.99, up 3.4 per cent or 137.76 points, while the FTSE 250 strengthened by 2.6 per cent or 188.22 points to 7,369.75. The session highlighted the increasing disconnect between domestic economic fortunes, which appeared decidedly bleak after official figures showed that UK GDP contracted by a greater-than-expected rate of 1.9 per cent in the first three months of this year, and London-listed blue chips, which rallied on hopes of a recovery in China.

Leading stocks were also boosted by early strength on Wall Street, where investors welcomed better-than-forecast results from Ford, the carmaker, which revealed an unexpectedly narrow quarterly loss. Spirits were also lifted by a new report on new home sales in March, which suggested the troubled American housing market may be stabilising.

The large life insurance groups rallied as investors bought in ahead of a round of updates next week, with Aviva, which is due to post an interim management statement on Monday, climbing 14.2 per cent or 34p to 273.25p. Friends Provident, which will follow suit on Tuesday, added almost 5.4 per cent or 3.3p to 64.8p.

Banks, too, were firm, with Lloyds Banking Group, the target price for which was raised to 120p from 100p at UBS, gaining 4.2 per cent or 4p to 100p. Royal Bank of Scotland, which expects to register a £4.5bn pre-tax gain from its three-part bond buyback and exchange offers, rose to 33.3p, up 5.7 per cent or 1.8p.

There was little activity on the downside, with investors taking profits in Tesco, which was 1.6p weaker at 355.4p, and in defensives in the utilities sector, such as Drax, which was 9p behind at 518p.

On the second tier, WH Smith advanced to 438.75p, up 5.7 per cent or 23.7p, as analysts upped their forecasts on the back of the retailer's interim results, which were published to a positive reception on Thursday.

Both Citigroup and UBS reiterated their "buy" ratings, with the former raising its target for the stock to 480p from 440p, and the latter moving it to 480p from 415p. Altium, which also weighed in, upgraded its recommendation to "buy" from "hold".

Benign broker sentiment also gave a boost to RPS, the environmental consultancy, whose shares jumped to 180.75p, up 6 per cent or 10.2p, after Goldman Sachs upped its stance to "conviction buy" from "neutral".

"[We] forecast an increase in oil prices, to a range of $50-60 per barrel in the second half of this year, followed by an average of $70 per barrel in 2010 and $90 per barrel in 2011," the broker said. "These increases should drive demand for new projects, and, as a result, we expect a pick-up in the energy consultancy business at RPS. Additional opportunity should also derive from expected higher natural gas prices and increasing funding for alternative energy sources."

Among smaller companies, Regent Inns, the owner of the Walkabout chain of bars, retreated to 1.55p, down more than 33 per cent or 0.78p, after confirming consideration of plans to delist from the stock market. The company did not elaborate further, saying only that a further announcement will be made in due course.

Mark Brumby, leisure analyst at Blue Oar Securities, said that leaving the market would allow the company to restructure, pointing out that "with its market capitalisation as low as it is, under current listing rules, most transactions will be Class A transactions, and will involve the company and its shareholders in considerable expense".