Market Report: Dollar's slide adds sparkle to commodities

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The silver producer Fresnillo was among the risers as the FTSE 100 index regained its composure, breaking a four-session losing streak.

The stock rose by 4.3 per cent or 37.5p to 913p as renewed weakness in the US dollar boosted the price of commodities such as platinum, copper and gold, luring traders back into the mining sector. Besides Fresnillo, Lonmin and Kazakhmys stood out, climbing by 4 per cent or 67p to 1760p and by 4.3 per cent or 54p to 1320p respectively. Others in the sector also gained ground, with the likes of Rio Tinto, up 117p at 3265p, and Xstrata, up 30p at 1100p, helping the FTSE 100 recover from the recent bout of weakness.

The rally boosted the benchmark by 2 per cent or 104.09 points to 5355.5.

The mid-cap FTSE 250 index was also buoyant yesterday, rising by 1.1 per cent or 102.51 points to 9270.11.

Gold was among the best performing commodities of the day, touching a new record high and in turn lifting Randgold Resources, which climbed to 5120p, up 3.4 per cent or 170p.

"After a week spent edging relentlessly lower, [last night's] surge by UK shares would seem to demonstrate that positive sentiment is still around in spades as far as stock markets are concerned," said David Jones, chief market strategist at the City spread betting firm IG Index, adding that the 5,600-point mark was becoming a popular year-end target for the FTSE 100.

Over in the banking sector, Lloyds, up 3.8 per cent or 3.32p at 91.47p, reported strong demand for a bond exchange, lifting sentiment among traders, who said the news augured well for the group's share issue, which is due to be priced today. Royal Bank of Scotland rose by 5 per cent or 1.805p to 37.8p, securing pole position on the FTSE 100, as traders scrutinised a weekend press report suggesting that it may look to park a chunk of toxic loans with Ireland's National Asset Management Agency, the so-called Irish "bad bank", via its Ulster Bank subsidiary. Commenting on the matter on the sidelines of a conference in London, RBS's chief executive, Stephen Hestor, said no decision had been made on whether to put assets into the Irish scheme.

In the wider sector, HSBC was strong, rising by 2.7 per cent or 19.5p to 751.4p after Standard & Poor's, the ratings agency, released a global comparison of risk adjusted capital ratios at 45 international banks, with HSBC topping the rankings with a ratio of 9.2 per cent. Standard Chartered, up 4 per cent or 64.5p at 1677.5p, secured a place at the top end of the table with a ratio of 8.1 per cent, while Barclays, up 10.25p at 314.5p, was just behind JP Morgan and tied with Credit Suisse with a ratio of 6.9 per cent.

Elsewhere, the speculators refused to give up on International Power, which edged up by 2.6p to 272p amid another round of bid talk. An unnamed suitor was said to be eyeing the business, with a view to offering up to 400p per share, a significant premium to last night's closing price. Further afield, SSL International, the company behind Durex branded condoms, retreated to 672p, down 9p, as rumours of takeover interest from the consumer goods giant Reckitt Benckiser, up 37p at 3166p, faded.

The weakness came despite some words of support from Nomura, which reiterated its "buy" stance in advance of the company's interim results. "We expect encouraging comments on [the] innovation pipeline and on the recently acquired Russian business during the management presentation," the broker said, adding that it still viewed SSL as a take-out candidate.

Panmure Gordon backed sentiment around Rentokil Initial, the support services group which gained 1.6p to 102.4p after the broker upped its target price for the stock to 136p from 101p. Returning from a sales meeting with the chief executive and the finance director on Friday, the broker said that "while there remains a lot to do before the company is back to rude health", it "can continue to outperform expectations on cost saving initiatives alone, and is not reliant on a cyclical recovery until 2011".

"While the road towards full recovery will continue to be a long and bumpy one, we ultimately think the company is heading in the right direction," Panmure added, repeating its "buy" stance on the stock. "In terms of long-term valuation creation, we think 50 per cent of the value will come from improving the profitability of the business, with the remaining 50 per cent likely to be determined by how the market values these improving profits."

On the downside, the transport group National Express was 4.8p behind at 362.1p after it emerged that Jorge Cosmen had bought another 750,000 shares in the company, taking the Cosmen family's stake to 19.46 per cent. The disclosure came amid unconfirmed chatter that the Cosmens had stepped up moves to convince other investors to oppose the company's rights issue, which will be put to shareholders in a vote later this week.

The wider transport sector was mixed, with Go-Ahead, which said it had made a cash offer to acquire Plymouth CityBus from Plymouth City Council, easing by 4p to 1338p. FirstGroup was 5.1p ahead at 412.5p and Stagecoach rose by 0.9p to 151p.

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