Miners lift FTSE but inflationary fears cap gains

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Miners lift FTSE but inflationary fears cap gains

14/05/2008 09:40

By Rebekah Curtis

LONDON (Reuters) - Blue-chip shares eked out modest gains early on Wednesday, as miners thrust higher by merger and acquisition talk partly offset a banking sector bruised by an increasingly tough inflationary climate.

By 9:06 a.m. the FTSE 100 <.FTSE> was up 8.9 points, or 0.1 percent at 6,220.7 points, as shares rose across Europe. Advancing shares and decliners were at a ratio of one to one.

Miners dominated the gainers list, together adding 18 points to the index. Leading the FTSE’s advance, BHP Billiton jumped 3.4 percent after dealers cited talk that a Chinese entity, possibly aluminium group Chinalco, was looking to buy a stake.

Separately, BHP Chief Executive Marius Kloppers told broadcaster CNBC the company was not ruling out adding cash to its all-share hostile offer for rival Rio Tinto .

Rio and Anglo American both tacked on 1.9 percent, while Vedanta Resources added 2.8 percent.

Banks kept a leash on gains as concerns for the economic outlook were stoked by inflation showing no signs of abating at both the consumer and producer level.

Data the previous day showed the consumer price inflation rate leapt by its biggest amount in nearly six years, to a full point above the central bank’s 2 percent target, as food and fuel bills soared, while retail sales values fell for a second month in April.

"It looks concerning," said Roger Cursley, a strategist at Investec. "The picture is not pretty at the moment."

"Inflation numbers are going to stay high for a while and there’s no sign of relief on that front, and that’s going to make life very difficult for the (Bank of England’s) Monetary Policy Committee."

The Bank issues its quarterly inflation report at 10:30 a.m..

BEATEN-UP B&B

Adding pressure to the sector, Bradford & Bingley shares sank 9.3 percent after the lender unveiled a 300 million pound rights issue, just a month after saying it had no plans to do so. Analysts said the news will add to pressure on rival Alliance & Leicester (A&L) to raise capital. Barclays is also seen as in need of boosting its capital position. A&L, which tumbled on credit-related writedowns in the previous session, dropped 4 percent. Barclays lost 1.3 percent.

Wall Street declined on Tuesday as oil rose to another record and underscored concerns about inflation, while the Federal Reserve chairman said financial markets are still troubled. Asian stocks struggled to make gains on Wednesday as the benefits of a firm dollar were offset by weak financials.

British rail and bus firm FirstGroup , off 7.7 percent, led the FTSE decliners after saying it expected to raise 230 million-240 million pounds ($447.4 million) in a placing of 43.7 million shares, a discount to the current price.

Property firm Land Securities drifted lower after it reported an 8.8 percent slide in the value of its portfolio but said it was outperforming industry benchmarks and its planned demerger was progressing well.

Supermarket group J. Sainsbury lost 2.8 percent after reporting annual underlying pre-tax profit bang in line with expectations, and after Numis downgraded the stock to "reduce" from "hold."

(Editing by Quentin Bryar)

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