Market Report: Miners boosted as China bounces back

The mining sector rallied strongly last night, lifting the FTSE 100 as investors piled in amid further signs of a rebound in China's economy.

Chinese industrial output rose in November by 19.2 per cent year-on-year, its fastest growth rate since June 2007. Imports also bounced back, while the rate of decline in exports narrowed sharply. The data boosted confidence across the mining industry, as traders pegged their hopes on an uptick in Chinese demand for metals. Copper prices, for example, snapped a six-session losing spree, boosting sentiment around Vedanta Resources, which closed 3.2 per cent, or 75p, higher at 2390p, Antofagasta, which was 1.8 per cent, or 16.5p, ahead at 915.5p, and Xstrata, which gained 1.5 per cent, or 15p, to close at 147p.

In the wider sector, Kazakhmys also gained after it said it was doubling the stake it is selling in Kazakhstan's biggest power plant, Its shares rose 2.2 per cent, or 27p, to 1253p. Lonmin was 2 per cent, or 35p, ahead at 1764p, while BHP Billiton rose 1.4 per cent, or 25p, to 1875p. Rio Tinto was 39p higher at 3134p and Randgold Resources rose 26p to 5015p.

Besides the news from China, mining equities received a boosted from Barclays Capital, which said that, despite the gains in the year to date, it expected the sector to trade higher in 2010. "We expect share price performance to be strong once again in 2010, as the global economic recovery should gain momentum and supply constraints in many commodities should limit production growth in response to strengthening demand," the broker said. It noted that valuations were "still not full discounting the earnings growth potential for this sector". "Consensus earnings upgrades should be coming," Barclays added, raising hopes among traders.

Overall, the miners underpinned gains for the FTSE 100, which rose to a session high of 5,311.98. At the close, the index was 17.2 points higher at 5,261.57, relaxing off highs as the US dollar climbed in response to better-than-expected retail sales figures. The FTSE 250 was also firm, gaining 42.05 points to close at 9,000.65.

Speculators were in action, with renewed chatter about the possibility of a break-up bid driving sentiment around the medical devices manufacturer Smith & Nephew, which rose by 2 per cent, or 12p, to 620p. Elsewhere, GDF Suez was again said to be ready to pounce on International Power, the power generator, which closed 2.8 per cent, or 7.9p, higher at 295.1p. International was also the subject of comment from HSBC, which raised its target for the stock to 330p.

The banking sector was held back, with Royal Bank of Scotland declining by 2.5 per cent, or 0.78p, to 30.56p and HSBC falling 1.4 per cent, or 9.6p, to 703.4p. Lloyds was 3.4 per cent, or 2p, weaker at 56.22p, with traders attributing the decline to profit-taking before the results of its right issue offer, which are expected early next week.

Standard Chartered fared the best, closing broadly unchanged at 1509.5p, a fall of 0.5p. Barclays was 1 per cent, or 2.75p, lower at 288p. Other financial stocks also came under pressure, with the hedge fund group Man easing by 6.1p to 309.8p, and the insurer Legal & General losing 1.35p to close at 75.9p.

On the second tier, the pubs group Punch Taverns was 2.1 per cent, or 1.7p, weaker at 78.05p as Credit Suisse weighed in on the prospects for the company's interim management statement next week. Reiterating its "outperform" stance, the broker said the update should offer positive news, and might prove to be "a catalyst for better share price performance despite what seems to be a low level of investor appetite for higher risk equities at this point in the year".

Shares in London Stock Exchange were 2.7 per cent, or 19p, behind at 694.5p after Citigroup reiterated its "sell" stance, albeit with a revised 670p target price, compared to 660p previously. The broker said the outperformance of the stock this year "fails to appreciate the possibility of a profitability gap or a weak earnings growth profile going forwards".

It added: "The new chief executive officer [Xavier Rolet] talks of greater customer co-operation but this goes hand in hand with pricing pressures. A 56 per cent Ebitda margin is unlikely to be maintained in a more mutualist environment."

Further afield, the online fashion retailer Asos was 3.5p weaker at 467.75p after Charles Stanley issued a "sell" note, offsetting the impact of "buy" advice from Collins Stewart. "Our stance on Asos is primarily a valuation call," Charles Stanley said, highlighting the fact that the stock trades on what it called "a super-premium" multiple of 27 times earnings forecasts for 2010, compared with an average of 14 times for the UK general retail sector, and in line with long-term internet winners such as Google.

Back on the upside, Coffeeheaven, the Eastern Europe-focused coffee shops operator, rallied by almost 14 per cent, or 2.75p, to 22.5p after Whitbread, the FTSE 100-listed hospitality group confirmed market rumours that it was in advanced talks about a possible 24p-per-share bid for the business.

Whitbread's shares rose by 3.1 per cent, or 40p, to 1330p following the announcment.