By Aude Lagorce
LONDON (MarketWatch) -- London shares advanced Monday afternoon,
supported by a rally in the mining sector, as investors awaited the
verdict of the U.S. Federal Reserve on a potential new round of
quantitative easing.
The FTSE 100 index fluctuated between gains and losses
throughout the morning but turned decidedly higher in early
afternoon with the release of better-than-expected U.S.
manufacturing data. The index gained 0.5% to 5,702.27 in recent
trading.
The surprise improvement fueled investors' confidence in the
strength of the global economic recovery and helped mining shares
extend a rally started with the publication of solid Chinese
manufacturing data overnight.
Shares of Xstrata PLC gained 3.3% and Kazakhmys PLC added
3%.
The strong U.S. data also helped U.K. investors shrug off their
disappointment that quantitative easing likely won't happen in the
U.K. in the near future as economic indicators improve.
"The market opened very strongly on the back of the Chinese data
but quickly pulled back after better-than-expected U.K. PMI, which
is the final nail in the coffin for more quantitative easing on
this side of the Atlantic," said Richard Perry, strategist at
Central Markets.
The Bank of England holds its policy meeting on Thursday.
Better-than-expected economic data will fuel the case for not
pumping any more money into the economy at this stage.
"Every bit of good U.K. economics news is bad news as it makes
another round of quantitative easing unlikely," Perry said.
While the Bank of England decision on Thursday is important to
investors, it ranks second to what the U.S. Federal Reserve does on
Wednesday. It is widely expected to launch a new bond-purchase
program.
There was a pocket of strength in the financial sector, with
shares of Royal Bank of Scotland Group PLC (RBS) and Lloyds Banking
Group PLC climbing more than 2%.
Shares of recruitment companies Hays PLC and Michael Page
International PLC clocked gains of more than 3% after Credit Suisse
upgraded its recommendation on both stocks to outperform, citing
their exposure to international markets.
Also on the upside, shares of chip maker CSR PLC rose 2.3% on
the back of an upgrade from Morgan Stanley. The broker lifted its
rating on the stock to equal-weight, saying many of the negative
issues the company faces are already discounted in the share price
including market-share loss in the wireless segment.
One of the main decliners on Monday was Serco Group PLC . Shares
of the outsourcing company fell nearly 6% after it abandoned plans
to pass on the impact of government spending cuts to suppliers.
Another loser, outside of the main index this time, was Ryanair
Holdings PLC (RYAAY), which declined 3.4%. Europe's largest
low-cost airline reported a 32% increase in second-quarter profit
and lifted its guidance for the year but cautioned it has little
visibility on ticket prices in the fourth quarter.