FTSE steadies near two-month high at close, miners up

Tue Sep 2, 2014 11:56am EDT

* FTSE 100 index finishes 0.06 percent higher

* Basic resources stocks track higher metals prices

* Caution ahead of ECB policy meeting on Thursday

By Atul Prakash

LONDON, Sept 2 (Reuters) - Britain's top share index steadied near a two-month high on Tuesday, with some caution before the European Central Bank's policy meeting on Thursday offsetting a rally in miners prompted by stronger metals prices.

Basic resources stocks were the biggest gainers, with the UK mining index up 1 percent as zinc rose to a four-week high and aluminium neared an 18-month peak on increased fund buying.

Both BHP Billiton and Antofagasta rose 0.8 percent and 1.3 percent respectively, while Anglo American gained 2.5 percent, with traders citing a Dow Jones report saying its CEO was "open to takeover offer".

But drugmaker AstraZeneca fell 0.8 percent as it sought to play down speculation of a new bid. Its chief executive told Reuters that everything was "back to normal" in spite of speculation that Pfizer could make a new bid for the British company.

The blue-chip FTSE 100 index ended 0.06 percent higher at 6,829.17 points after rising up to 6,849.28 points, the highest level since early July.

"Investors remain reluctant to load up too aggressively ahead of this week's ECB rate meeting and this appears to be limiting the upside potential, as investors weigh up the likelihood of further action at Thursday's meeting," Michael Hewson, chief market analyst at CMC Markets, said.

ECB President Mario Draghi's dovish speech last month at a meeting of central bankers had raised expectations it was preparing more stimulus, but sources within the bank said last week any new action was unlikely, although not impossible, and the barrier to quantitative easing was still "very high".

"There is some nervousness, but we don't expect the ECB to add to the stimulus programme this time around. However, anaemic economic growth and poor lending conditions would suggest we wouldn't have to wait for too long," Henk Potts, equity strategist at Barclays, said.

"In the short term, there is potential for the stock market to witness increased volatility and nervousness, but an improving business environment will help equities to push higher in the medium- to longer-term."

The FTSE 100 reached a peak of 6,894.88 points in mid-May, its highest in more than 14 years. But it has not yet passed 6,900, the main hurdle before it can challenge record highs around 7,000 points.

With Scotland set to vote on independence this month, investors are watching the polls with interest although most see only marginal exposure for UK stocks.

Support for Scottish independence rose sharply in August, a poll showed on Monday, leaving the "Yes" campaign just six points behind advocates of staying in the United Kingdom. The poll is the first to show a substantial shift in opinion since two television debates.

Among other sharp movers, Vodafone rose 1 percent, with traders citing a Nikkei report suggesting the British mobile operator may become a takeover target for Japanese telecoms firm SoftBank. (Additional reporting by Tricia Wright; Editing by Ruth Pitchford/Catherine Evans)

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