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UK stocks consolidate after ECB bond-buying boost

LONDON Sept 7 — Britain’s top share index was fractionally higher in early trade today, consolidating the previous session’s sharp rally sparked by the ECB’s bond-buying programme, as investors looked to US monthly payrolls data to provide a fresh leg-up.

Firm miners supported the blue-chip gains; tracking stronger copper prices on hopes for a demand boost as better US data and the ECB’s new plan to buy bonds to ease the euro zone debt crisis, lift the global economy.

Mining bid target Xstrata was a strong performer, up 4.8 per cent, while its predator, commodities trader Glencore dropped 1.5 per cent in volatile trade after surprising investors by postponing a shareholder meeting that had been due to vote on the US$34 billion (RM105 billion) takeover.

Glencore’s bid, which had been teetering on the brink of collapse after Xstrata’s second-largest shareholder, Qatar, said it would vote against Glencore’s offer of 2.8 new shares for every Xstrata share held, appeared to be back on.

“If Glencore’s adjourning the meeting then it looks like they probably will be raising the exchange ratio,” said an analyst who declined to be named.

Trading volumes in Glencore and Xstrata shares were strong at 134 per cent and 106 pence of their 90-day daily averages, swelling overall FTSE 100 volume which was over 35 per cent of the 90-day daily average in the first hour of trading.

At 0816 GMT (8.16pm local time), the FTSE 100 index was up 0.87 points, or 0.01 per cent at 5,778.21, having jumped 2.1 per cent yesterday, with the blue-chip index easing back after breaching the 5,800 level early on for the first time in two weeks.

“Now that the FTSE appears to be ready to start another leg up, traders should be aware of a possible upside target,” said James A. Hyerczyk, analyst at Autochartist

“Based on the break from 5,876.20 to 5,630.11, traders should look for a rally to 5,755.55 to 5,784.02 over the near-term. Exceeding this retracement zone will indicate more upside to follow,” Hyerczyk said.

Investors showed little reaction to a mixed batch of British data, with July industrial output rising at its fastest pace since 1987, but August wholesale PPI inflation rising more than expected.

Banks buoyant

Aside from the miners, risk-sensitive banks were also strong performers as the ECB bond-buying moves yesterday boosted a sector heavily exposed to euro zone debt.

Barclays was a top performing British bank, up 3.9 per cent as Deutsche Bank raised its rating on the stock.

“Given more clarity on Barclays’ leadership and the terms under which the ECB will support Italian and Spanish sovereign bond markets, and the extreme valuation highlighted above, we are upgrading Barclays to Buy,” Deutsche Bank said in a note.

With the ECB appearing to have delivered on its promises yesterday, investors turned to key signals of improvement for the US economy for a further lift today.

US employers are expected to have increased payrolls by 125,000 workers last month, according to a Reuters survey of economists, although data earlier this week showed US private employers added a better-than-expected 201,000 jobs in August, triggering hopes of forecast-beating August figures at 1230 GMT (12.30am local time).

However, while the markets should welcome strong data, it could also dent hopes for fresh stimulus measures from the Federal Reserve ahead of its latest monetary policy committee meeting next week.

“Whilst better employment reports should be welcomed as confirmation that the US economy remains resilient, the data should put to bed the need for more QE (quantitative easing), in the US, in the near-term, in our view,” said Shore Capital strategist Gerard Lane in a note. — Reuters

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