Britain's FTSE hits one-week high, cyclical shares in demand

Wed Jul 2, 2014 11:26am EDT

* FTSE 100 index rises 0.2 percent

* Cyclical shares gain on solid data

* Upbeat house price data helps housebuilders

By Atul Prakash

LONDON, July 2 (Reuters) - Britain's top share index hit a one-week high on Wednesday, with upbeat economic data from the United States and China improving investor sentiment and boosting cyclical sectors like banks, miners and automakers.

The blue-chip FTSE 100 index was up 0.2 percent at 6,817.06 points by 1512 GMT after climbing to a high of 6,829.49, the highest level since late June. The index is up more than 5 percent so far this year.

Cyclical shares were in demand following the release of data showing U.S. private payrolls recorded their largest gain in 1-1/2 years in June as businesses stepped up hiring, reinforcing views the economy has rebounded from its first-quarter slump.

"These solid economic numbers raise expectations that the second quarter U.S. growth figures would be good," said Keith Bowman, equity analyst at Hargreaves Lansdown.

"This is a good environment for cyclical companies as a pickup in business activity in the world's largest economy has the potential to increase demand for cyclical shares."

The U.S. private jobs data came a day after figures showed that factory activity in China, the world's biggest metals consumer, hit multi-month highs in June.

The UK mining index rose a further 0.8 percent on Wednesday, extending the previous session's 2.9 percent rally, while the banking index gained 0.7 percent.

"(Miners) have been some of the worst performers over the past two or three years and they're just getting a little bit more buying interest on the back of the fact that people think that copper prices and commodity prices are going to edge up," CMC Markets senior analyst Michael Hewson said.

Among the miners, Rio Tinto and BHP Billiton advanced 1.2 percent and 1 percent respectively. Miners account for about 10 percent of the FTSE 100 index.

Some strength was seen in housebuilders after figures from mortgage lender Nationwide showing British house prices rose at their fastest annual pace in more than nine years last month.

Blue-chip Barratt Developments rose 0.4 percent, while among mid-caps, Bovis Homes and Taylor Wimpey advanced 0.5 percent and 1 percent respectively.

The sector has been rattled in the past weeks by rising expectations of a Bank of England rate hike before the end of the year, but analysts and traders view any such weakness as a buying opportunity.

"The sector got clobbered a bit in the sell-off on interest rate worries. I think our view was that that was probably overdone," Peel Hunt equity strategist Ian Williams said.

"I just don't see where the inflationary pressure is enough in the next six months to put rates up in October/November. I still think it's a much more likely story for next year." (Additional reporting by Tricia Wright; Editing by Catherine Evans)

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