By Michael Taylor
LONDON, Feb 12 (Reuters) - Britain's leading share index
extended earlier gains to climb 1.3 percent on Tuesday as
investors bought back into a cheapened market and as gains in
banks and oils overshadowed downbeat insurers.
At 1155 GMT the FTSE 100 <> was 71.1 points higher at
5,778.8, buoyed by data which showed that UK consumer price
inflation in January was not as high as expected.
On the upside, BP <BP.L> gained 0.9 percent and Royal Dutch
Shell <RDSa.L> tacked on 2.1 percent with U.S. crude at about
$93 a barrel as investors weighed the prospects for growing
stocks of crude in the United States against Venezuela's threat
to stop sales to the world's top consumer.
But insurers were the largest drag on the index, after AIG
<AIG.N>, the world's largest insurer, unveiled potential losses
in its derivatives portfolio.
South African insurer Old Mutual <OML.L> shed 1.5 percent to
touch its lowest level in almost 3-1/2 years, over the outlook
for the South African economy, which has been crippled by a
month of power shortages.
Admiral Group <ADM.L> slipped 3.5 percent.
Standard Chartered <STAN.L> was up 0.7 percent however,
despite the falling through on Monday of it's plan to provide $7
billion of backing to a structured investment vehicle.
Banks rose, with HBOS <HBOS.L>, Barclays <BARC.L> and HSBC
<HSBA.L> up as much as 3.6 percent as stocks sensitive to
interest rates found comfort in softer-than-expected inflation
data.
In this vein, homebuilders Persimmon <PSN.L> and Taylor
Wimpey <TW.L> also rose.
DATA STIMULUS
British consumer price inflation rose in January to its
highest since June 2007 but the rise was smaller than most
economists had forecast. See []
This came on the back of data on Monday which showed British
factory gate inflation rose more than expected in January and to
its highest rate in more than 16 years.
The Bank of England cut rates last week by 25 basis points
but also flagged inflation pressures and recent data could well
limit the bank's scope to further loosen monetary policy.
"I'd be still very worried that you're not going to get any
more rate cuts at all, I can't see them," said David Buik of
Cantor Index. "But the market seemed to be happy with the fact
that (the data) came in slightly better than expected."
"This is the most classic bear-squeeze market for two or
three years. We are up today, tomorrow we'll probably be down."
"It's a classic knee-jerk reaction market. Volumes aren't
particularly good (either)," Buik added.
Miners, which in the previous session traded broadly
negative, also regained ground. Rio Tinto <RIO.L>, BHP Billiton
<BLT.L>, Antofagasta <ANTO.L>, Anglo American <AAL.L> and Lonmin
<LMI.L> between 1.7 and 5.2 percent higher even as metal prices
were broadly unchanged.
Xstrata <XTA.L> however, dipped 1.9 percent, after the
Financial Times reported the Anglo-Swiss miner had rejected a
$76 billion takeover approach from Brazil's Vale <VALE5.SA> and
that its suitor was close to walking away. Xstrata declined to
comment. See []
Rolls-Royce Group <RR.L> lost 1.6 percent to an 18 month low
after Goldman Sachs cut its price target to 413 pence from 447
pence and said it now expects flat earnings of around 34 pence
per share for the next three years.
AstraZeneca <AZN.L> dipped 1.2 percent after ING initiated
coverage with a "sell" rating and price target of 1760 pence.
(Additional reporting by Dominic Lau and Ana Nicolaci da Costa;
Editing by Quentin Bryar)
