Miners led Britain's FTSE 100 higher early on Tuesday, boosted by stronger-than-expected manufacturing data from China, and as the index caught up with sharp gains posted in Europe in the previous session.
London's blue chip index was up 67.67 points or 1.2 percent at 5,639.95 by 0903 GMT on the first trading day since the new year holiday break.
“Following on from a solid performance across Europe yesterday, investors piled in and trading screens quickly turned blue,” Manoj Ladwa, senior trader at ETX Capital, said.
“Traders will be looking for the positive momentum to continue as January usually serves as a barometer for the rest of the year.”
Technical analysts said the FTSE 100 still faces the challenge of closing above its 200-day moving average, currently around 5,610, which it has failed to do since late July 2011, but could push on should it achieve that feat.
UK-listed stocks echoed gains in Europe on Monday, when British investors were enjoying their extended new year's break, and overnight in Asia where commodity stocks were given a lift after China reported a slight expansion in business activity in the factory sector.
London's blue chip miners rose 3.4 percent – having fallen around 30 percent in 2011 – with Xstrata and Kazakhmys up 3.7 and 4.5 percent, respectively.
Integrated oils were higher too, supported by as the price of crude, which continued to climb on escalating tensions between Iran and the West.
Oil major BP rose one percent as it called on its contractor Halliburton to pay all costs and expenses it incurred to clean up the 2010 Gulf of Mexico oil spill.
Banks rally
Barclays led the banking sector higher, gaining 3.8 percent, as Citigroup upped its target price for the lender to 245 pence from 230p and repeated its “buy” rating on the stock, saying it believes BarCap can be a winner in the consolidating world of capital markets.
Banks – around 30 percent lower in 2011 – also climbed as investors dipped into riskier assets perceived to have been dealt with harshly in 2011 on the back of fears over the health of the global economy.
In a global equity strategy note, Ian Scott at Nomura said the equity risk premium is higher than merited by current volatility.
“A move away from such extreme risk aversion should mean an underperformance of US equities relative to others, as well as an outperformance of mining stocks over food producers,” he said.
“Crucially for this approach, value spreads are wide, suggesting this is an appropriate time to consider investments based upon valuations.”
Car and plane parts maker GKN was a top gainer, up 3.8 percent, with traders saying demand for the stock was spurred after it had been tipped in the weekend press.
On the macro economic data front, December's Markit/CIPS UK manufacturing PMI, due to be released at 0930 GMT, will be closely watched after it was reported on Monday that euro zone manufacturing activity declined for a fifth consecutive month in December.
