Market Report: British investors told to look abroad for gains

It may have been a storming start to 2012 for the blue-chip index, but the City was hardly worry-free yesterday. Despite the Footsie gaining nearly 130 points to continue a rally that has seen it add almost 6 per cent in the last six sessions, investors were still being told to look outside Blighty for major gains.

The warning came from Jefferies after analysts from the broker announced they were bearish on the outlook for UK equities for the year ahead.

As if to prove their point, they chose just one company from these shores in their choice of favoured stocks from around the world, compared to three from China and Japan and nine from the US.

The sole UK name that managed to get on the broker's "conviction list" for 2012 was BT, with Jefferies' scribblers claiming the telecoms giant's share price could gain as much as 30 per cent. Praising its potential for cost-cutting and the possible benefits from the upcoming launch of its joint YouView venture, they also suggested BT's dividend may be increased later in the year as the group charged up 8.2p to 199.1p – a new, five-month high.

It wasn't the only company rising during the first trading day of the new year, as the FTSE 100 closed 127.63 points stronger at 5,699.91.

Although the index was playing catch-up after strong gains from its European peers on Monday while the Square Mile was enjoying a bank holiday, it was also encouraged by a raft of expectation-beating economic data from across the world.

These included manufacturing figures from the UK, the US and China, with numbers from the latter in particular boosting commodity prices and, as a result, the miners. They ended up dominating the leaderboard, as Kazakhmys and Antofagasta took the top two spots, pushing up 88p to 1,015p and 90p to 1,305p respectively.

Even Vedanta Resources moved 51p higher to 1,066p, shrugging off India's decision to increase export duties on iron ore by 50 per cent – a move which Credit Suisse estimated could hit the group's earnings by $150m (£95.8m).

The mid-tier diggers were also benefiting, as Talvivaara soared up a huge 27.65 per cent to 255.3, its highest since October. The Finnish nickel miner revealed it had achieved its production target for 2011 and is on course to meet the 2012 target as well, with some traders putting the size of the extreme move down in part to short-covering by those who were expecting worse news.

Despite the rise, the eurozone crisis was still lurking in the back of dealers' minds. Rumours of a possible sovereign downgrade for France emerged yet again, although this was countered by vague speculation suggesting the European Central Bank has been buying up Spanish, Portuguese and Italian bonds.

The banks were in positive territory, including Barclays. It was driven 10.25p higher to 186.3p following kind words from Citigroup, which kept its "buy" advice and predicted the group's earnings in the near-term "could surprise on the upside".

Just five companies finished in the red, including drugs maker Shire. Its rise last year of more than 45 per cent was the best on the Footsie, but yesterday it crept down 16p to 2,228p amid continuing concerns over a sector-wide shortage of the ADHD drug Adderall.

While the retailers waited for today's trading statement from Next (up 4p to 2,742p) – the first major name in the sector to report on Christmas trading – Home Retail powered up 12.95 per cent despite further criticism from the City.

Seymour Pierce's Freddie George repeated his belief that the Argos and Homebase-owner will have been one of the festive period's major losers, but the group still climbed 10.8p to 94.18p on the FTSE 250 – a move some were, unsurprisingly, putting down to persistent bid hopes.

Afren, another favourite of the market gossips, spurted up 20.42 per cent to 103.2p after the oil explorer announced on Monday that its output was ahead of target. Meanwhile, Cable & Wireless Worldwide was 13.54 per cent stronger at 18.45p amid the return once again of suggestions it could be in line for a takeover.

Down on AIM, ViaLogy rose 16.67 per cent to 1.75p after talking up its friendship with a number of the world's major energy companies. The tiddler, whose technology is used to discover oil and gas sites, claimed it was about to be awarded contracts in Asia with two "global" names while also boasting it had made "substantial progress... in consolidating relationships" with a number of other firms.

Elsewhere, New World Oil and Gas' shareholders were cheered by the news that a number of companies have expressed an interest over getting involved in the explorer's Belize and Denmark operations. As a result, the group said it had created a virtual data room full of info from the sites, as it advanced 1.38p to 9.88p.