FTSE bounces into February as M&A cheers miners

Britain's FTSE 100 bounced into February yesterday, surging 2.5 per cent as merger activity heated up the mining sector and after the leading share index put to bed its worst ever January.

The FTSE 100 ended up 149.4 points at 6,029.2. The index lost about nine per cent in January, a month when growing fears of a US recession repeatedly sparked stock market ructions around the globe. But financial markets worldwide remain jittery as investors fret over a cloudy outlook for the world's biggest economy.

"It may be a new trading month, but there's certainly no suggestion that the rampant volatility we saw in January is behind us," said Jimmy Yates, a trader at CMC Markets.

Rio Tinto shares surged 13 per cent after aluminium producer Alcoa Inc and China's Chinalco teamed up to acquire a 12 per cent stake in the mining giant for $14 billion, threatening miner BHP Billiton Plc's efforts to win Rio.

"We've had an amazing day for corporate activity... That will get the bulls running," said Roger Cursley, UK strategist at Investec.

Closely tailing Rio's top-spot on the gainers list, BHP leapt 9.8 per cent. Kazakhmys rose 3.9 per cent, Anglo American added 5.8 per cent and Antofagasta climbed 7.3 per cent.

European shares pared gains yesterday after US non-farm payrolls fell by 17,000 in January, confounding consensus expectations of an increase of 80,000. But data showing US factory activity in January rose more than expected, easing worries about the jobs data.

"Volatility is high... It's very, very hard for people to keep up," Mr Cursley added. "The chances are we may end February a bit lower than here, but not dramatically so."

US stocks edged lower in choppy trading as investors worried about the outlook for bond insurers and the economy, overshadowing news of Microsoft Corp's $44.6 billion offer to buy Yahoo Inc.

The UK market has discounted a quarter-point interest rate cut from the Bank of England next week, and is pricing in a one-in-three chance of a half percentage point reduction.

Banks joined in the rally, with HSBC up nearly three per cent, Alliance & Leicester rising more than three per cent and Standard Chartered up more than two per cent.

Topping the losers, British Airways fell 4.2 per cent on worries over its long-haul premium travel business in the light of weakness in financial markets, despite the airline's statement that traffic remains strong. Shares in British Land Company slid more than two per cent as Credit Suisse cut its rating for the property investment company to "neutral" from "outperform" and lowered its price target to £11.73 from £16.03. Real estate investment trust Segro added three per cent as Credit Suisse raised its rating to "outperform".