By Dominic Lau
LONDON, Feb 6 (Reuters) - Britain's leading share index, the
FTSE 100 <>, edged higher by midday on Wednesday as fears
of a U.S. recession prompted investors to pursue defensive
stocks, which offset weakness in banks and miners.
At 1146 GMT, the FTSE 100 was up 17.8 points, or 0.3 percent
at 5,885.8, well off its day's low of 5,827.4. The index tumbled
2.6 percent on Tuesday, after a surprising fall in a key gauge
of U.S. service sector activity, bringing its loss for the year
so far to 8.9 percent.
"The ISM numbers basically confirm along with the numbers
out on Friday that the U.S. is in recession. The market has
certainly not priced in a U.S. recession at this stage," said
David Scott, a senior stockbroker at Redmayne-Bentley.
"The Fed is not going to meet until March. It is unlikely
that they will come out with another shock interest rate cut
before that," he said.
"The Bank of England may surprise us with a half point cut
but I don't think they can do that with the inflation level. We
are looking at a very negative outlook for the next week or so."
The BoE is widely expected to cut interest rates by a
quarter of a percentage point to 5.25 percent on Thursday.
European shares also rose by mid-session. U.S. stocks
suffered their biggest drop in nearly a year on Tuesday after
the drop in the Institute for Supply Management's index of
non-manufacturing activity, while Japan's Nikkei average <>
slid 4.7 percent on Wednesday.
Pay-TV firm BSkyB <BSY.L> rose 5.1 percent after it said it
was making more money per user, increasing customer loyalty and
operating in line with targets.
Defensive shares gained as investors decided to play it
safe. Index heavyweight Vodafone <VOD.L> advanced 0.3 percent,
Imperial Tobacco <IMT.L> added 2.5 percent, United Utilities
<UU.L> put on 1.5 percent, British Energy <BGY.L> rose 3.2
percent and Cadbury <CBRY.L> tacked on 2.1 percent.
Banks, however, were the worst hit, taking nearly 10 points
off the index. Royal Bank of Scotland <RBS.L>, HSBC <HSBA.L>,
Lloyds TSB <LLOY.L>, HBOS <HBOS.L> and Standard Chartered
<STAN.L> lost between 0.9 and 2.3 percent.
A survey showed consumer confidence in Britain fell to its
lowest level in nearly four years in January as uncertainty over
the economic outlook was compounded by market gyrations and
inflation.
OILS GAIN
BP <BP.L> rose 0.9 percent after Credit Suisse lifted its
price target and as crude prices <CLc1> ticked higher. Other oil
shares were also firmer.
BHP Billiton <BLT.L> shed 4.5 percent after the world's
biggest mining group launched a hostile $147.4 billion bid for
rival Rio Tinto <RIO.L> in a move that could trigger a
Chinese-led counterbid in the world's second biggest corporate
takeover. (For the latest stories on the Rio bid, double click
on [])
Rio dropped 0.2 percent, while the rest of the mining sector
also eased as base metal prices dipped.
Anglo-Swiss miner Xstrata <XTA.L>, however, advanced 1.9
percent as traders cited market talk of a bid from Brazil's Vale
<VALE5.SA>. Xstrata declined to comment.
AstraZeneca <AZN.L> and Sage <SGE.L> fell after trading
without the rights of dividend.
"We are starting to get indications right now that there are
signs of weakness beginning to creep into the economy, but
nothing at this stage is terribly serious. The Bank of England
will give a 25-basis point (cut) tomorrow," said Peter Dixon, UK
economist at Commerzbank.
"It will remain in a wait-and-see mode but it's going to cut
by at least 75 basis points this year and obviously if the
economy tanks, it will go by more. It has got more scope to do
so than the Fed has now."
(Additional reporting by Michael Taylor; Editing by Richard
Hubbard)
