Market Report: Weak dollar drives up metals specialists

The mining industry helped to support the FTSE 100 last night, with Eurasian Natural Resources Corporation advancing by almost 4 per cent as metals prices improved.

Commodities ticked up as the US dollar weakened, driving shares in ENRC up 38.5p to 1030p. Anglo American was just behind, rising 86.5p to 2809p, while Kazakhmys strengthened 25p to 1445p, Xstrata gained 28p to 1216.5p, BHP Billiton rose by 30p to 2074.5p and Antofagasta climbed to 1040p, up 15p. The latter two were also supported by Citigroup, which named BHP as its top diversified pick for 2010 and Antofagasta as its top copper pick, highlighting their strong balance sheets and superior volume growth.

"If the flow into commodities funds remains strong, [BHP Billiton] and [Antofagasta] will likely be key beneficiaries, albeit underperforming those with a higher risk profile," the broker said. "Should base metal prices now fail to make further headway, then the strong production growth profile of [BHP] and [Antofagasta] should stand them in good stead and still allow for ongoing earnings growth without metals price upside."

Overall, the FTSE 100 closed 39.02 points stronger at 5,494.39, while the FTSE 250 gained 33.87 points to 9572.07. There was little in the way of economic news, while over in on Wall Street the markets were shut to mark Martin Luther King Day.

In London, International Power was one of the key talking points. The utility company's stock touched a session high of 353.6p, up almost 10 per cent, amid renewed speculation about the possibility of a bid from France's GDF Suez. As the morning progressed, there was no confirmation from the company, but traders soon began citing talk that, instead of a full bid, GDF might be in talks about swapping certain assets. International Power put the market out of its misery in the afternoon, saying that while it had held preliminary discussions "regarding a potential combination of International Power and certain power assets of GDF Suez", those talks were no longer ongoing. In response, the company's stock fell 11p to 311p.

Home Retail Group gained ground as traders moved in to capitalise on the recent weakness in the shares. ING lured buyers, saying that while HRG's recent trading statement was weak and it still had questions about the medium-term sustainability of the Argos owner's earnings, a run of underperformance had "dramatically" altered the valuation.

In keeping with its assessment, the broker switched its stance to "buy", helping the stock to rise 6.7p to 267.8p. In the wider retail sector, Marks & Spencer closed 11p stronger at 360.6p, while Kingfisher gained 2.6p to 228.2p and J Sainsbury climbed 3.6p to 334.3p despite some bearish words from strategists at Morgan Stanley, who reiterated their cautious stance on general retailers.

The banking sector was positive, with Royal Bank of Scotland rising 0.5p to 37.24p and Lloyds climbing 1.8p to 58.58p. Standard Chartered also edged up, rising by 9.5p to 1561p, but HSBC fell back, declining by 3.5p to 699p. Over among the insurers, Aviva was 2.2p firmer at 422p as chatter regarding the possibility of a bid from Resolution faded. Legal & General was 0.25p ahead at 84.15p.

Elsewhere, the mobile satellite group Inmarsat was 2p weaker at 680p after Goldman Sachs downgraded the stock from "buy" to "neutral" on valuation grounds. Vodafone, which was also moved to "neutral" by the broker, managed to remain in the black and closed 0.9p at 135.6p. "Following modest underlying downgrades, our estimates are now slightly below consensus, offering limited earnings momentum over the coming six to 12 months," Goldman said.

Further afield, the semiconductor maker ARM, down 3.1p at 186.9p, was under pressure amid a round of profit-taking, with traders banking gains on the view that the company's growth prospects may be priced in. Citigroup prompted the concern, noting that while Arm stood to gain from the expected strength in the semiconductors market this year, the stock was already reflecting the scope for growth in the medium term.

The engineering group Tomkins, up 0.8p at 205.2p, was in focus after UBS repeated its "sell" view on stock, saying that it saw better opportunities elsewhere in the sector. The broker also weighed in on recent rumours, saying that an industrial buyer was unlikely to bid for the company.

"We think Tomkins in its entirety is a poor fit for Johnson Controls or Magna, who were mentioned in recent press reports," UBS's analysts said in a note. "Private equity seems more credible, but recent such deals such as Sun Capital buying Dayco have not been successful."

Takeover talk was also in evidence around the British video games retailer Game Group. Gamestop, the US games stores group which has been mentioned as a possible bidder numerous times before, was once again said to be sniffing around the company. Traders, disappointed with the result of the International Power bid rumours, weren't buying the story, however, and the stock closed 2.7p weaker at 98.3p.