Market Report: Copper-bottomed rally lifts mining sector

Vedanta Resources led the mining sector last night, swinging to first place on the FTSE 100 as the price of copper touched a six-month high.

Copper rallied strongly in early trading as commodity traders took stock of a fall in inventories at warehouses tracked by the London Metal Exchange. Sentiment was also lifted by an overnight rally in prices in Asia, pushing copper for three-month delivery to a high of well over $4,900 a tonne – levels not seen since October – amid talk that China may be stepping up moves to stockpile the metal.

Traders also pointed to a new circular from UBS, which highlighted that China uses a lot more copper than it mines domestically. Vedanta, which was also helped by a Barclays upgrade, was the biggest beneficiary of the rally, gaining 15.4 per cent or 134p to 1,008p. Kazakhmys was up 10.1 per cent or 47.5p to 513.5p while Xstrata climbed to 613.5p, up 7.1 per cent or 41p.

Overall, the FTSE 100 was broadly unchanged, edging up slightly by 5.2 points to 3,988.9, while the FTSE 250 strengthened by 173.2 points to 7,152.1. The benchmark index pared gains as trading commenced on Wall Street, where investors sold on news of an unexpected drop in retail sales. The data, which showed that sales at US retailers fell 1.1 per cent in March, ending a two-month run of gains, dampened the confidence sparked by a better-than-forecast earnings report from Goldman Sachs.

The Goldman results nonetheless supported UK-listed financials, which traded up. Barclays was among the strongest, rising by just over 10 per cent or 18p to 195.5p, with traders attributing the rise to last week's confirmation of the iShares disposal.

Despite the cheer in the market, Société Générale stuck to its bearish stance, reiterating its concerns about the lender's leverage and capital base. "We continue to believe Barclays has a tangible common equity deficit of £15bn-£20bn given the small positive benefit of this transaction," the broker said. "Material further dilution to common equity shareholders is unavoidable, in our view."

In the wider sector, Lloyds Banking Group was 10.5 per cent or 8.4p ahead at 87.9p. Legal & General led the insurers, rising by 11.6 per cent or 5.7p to 54.5p.

Among retailers, Next was broadly flat at 1,405p, up a slight 6p. The stock was added to Goldman's widely followed "conviction buy" list with a 12-month target price of 1,740p. "The shares remain at the lower end of their relative valuation range and we believe offer an opportunity to buy a UK retailer managed prudently and to gain exposure from any outperformance of the UK consumer," the broker said.

On the downside, defensives lost their sheen as investors sought riskier investments in the financial sector. British American Tobacco was the weakest, losing 4.7 per cent 75p to 1495p, while the defence group BAE Systems retreated to 323p, down 4.1 per cent or 14p.

Reed Elsevier, the publishing group, was also on the back foot, easing by 3.2p per cent or 15.2p to 460.25p.

On the second tier, Homeserve, the home emergency and repair services group, underperformed, losing 3.4 per cent or 45p to 1,251p, after Citigroup lowered its recommendation to "hold" from "buy", telling clients that problems in the small emergency repair business was "modestly offsetting" strength in the more important membership business, both in the UK and beyond. "The impairment at [the] emergency repair [division] will force analysts to reconsider their valuation of that business," the broker added, trimming its target for the stock to 1,330p from 1,380p.

Citi was more bullish on Bluebay Asset Management, which was more than 25 per cent or 32.5p heavier at 161.5p after the broker advised investors to buy into the fund manger. Impressed with the company's performance in March – Long/Short funds are up 6 per cent to 9 per cent, according to the broker, while its Long Only Emerging Market funds are 4 per cent to 7 per cent – Citi upped its forecasts for assets under management.

Elsewhere, Inchcape, the car dealership group, surged to 15.25p, up 15 per cent or 2p, with traders attributing the gain to hopes of a possible government car scrappage scheme and some positive comment from Morgan Stanley, which moved the stock to "over-weight" from "equal-weight", partly on account of the company's recent capital raising move. "Inchcape still has to deal with difficult fundamentals in virtually every car market in which it operates," the broker said, "Nevertheless we believe the risk-reward has now moved decisively in its favour."

Among smaller companies, Jarvis Securities strengthened by 16 per cent or 20p to 145p after the stockbroker declared its first interim dividend for 2009, of 3p per share.

The Local Radio Company climbed to 2p, up 33.3 per cent or 0.5p, after John Perriss, the company's independent non-executive director, recommended shareholders reject UKRD's £1.4m bid, as a rival offer by Hallwood, backed by TLR's non-executive chairman Anthony Gumbiner, was more attractive.