Market Update: Mining sector dominates London

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The Independent Online

The FTSE 100 was up 120.9 points at 4485.91 and the FTSE 250 climbed to 6782.22, up 196.64 points, at 12:19 pm.

The mining sector dominated the London market after the Chinese government unveiled a multi-billion dollar economic stimulus package, spurring gains in global metals and oil prices. Anglo American was the strongest, up almost 15 cent or 200p at 1550p, while Xstrata, at second place on the Footsie, was up 14.5.1 per cent or 155p at 1223p.

Reacting to the news, Exane BNP Paribas said that while the Chinese action was not a surprise, the timing was sooner than expected

"China's Development Bank, which is one of Anglo American's shareholders, was on record saying that GDP growth below 8 per cent was to be considered as a 'political suicide' that authorities will make every effort to avoid".

The broker said, "China's disproportionate weight in metals consumption shall therefore impact significantly on the supply-demand equations of numerous metals: China accounts for 55 per cent of iron ore seaborne consumption, 40 per cent of coking coal, 38 per cent of carbon steel, 35 per cent of aluminium. With both mining and steel manufacturers still busy cutting output as a response to the recent slowdown, a number of these markets could look rebalanced (tight?) again by the second quarter of next year..."

Moving up...

British Airways gained more than 9 per cent or 13.6p to 159.6p after the Royal Bank of Scotland switched its stance on the stock to "buy" from "sell", reasoning that "the time to buy airlines is when sentiment is wretched."

"Right now, BA's trading is suffering from the woes of the financial services industry, feeble US and UK economies and the liberalisation of the US-UK market. Concerns over its ballooning pension deficit also scare off many investors," the broker said, adding;

"We see BA benefiting from strong liquidity and secure financing until 2012. It faces limited capex [capital expenditure] and debt repayments. We think there could be good news in coming months -regarding anti-trust immunity with American and the merger with Iberia. Operationally, Terminal 5 will be of significant operational and financial benefit in 2010. We see several other cost and revenue levers to improve BA's margin."

Moving down...

HSBC was down 6.5p at 740p after the banking group warned of further losses at its US division in an update to the market this morning. The shares avoided a sharper fall, however, as the remainder of the statement, including news on capital ratios and group profits, was in-line or ahead of analyst expectations.

On the second tier, Imperial Energy was weak following reports that ONGC, the Indian oil & gas group which agreed to buy the company earlier this year, was trying to renegotiate its offer. Rival reports suggested otherwise, but the shares fell anyway, losing more than 6 per cent or 64p to 1001p, as investors moved out.