FTSE gains 1 pct as banks and miners rise

Fri Aug 22, 2008 6:36am EDT

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* FTSE 100 rises 1 pct * Financials rebound; Aon makes offer for Benfield * Energy stocks dip as oil prices retreat from highs

By Simon Falush

LONDON, Aug 22 (Reuters) - Britain's top share index rose 1 by midday on Friday as miners benefited from firmer commodity prices, while financials rebounded after recent losses and were boosted by merger and acquisition activity in the sector.

By 1009 GMT, the FTSE 100 .FTSE was up 51.1 points at 5,3421.2, after ticking down 1.6 points on Thursday. The UK benchmark is down 16 percent for the year. Banks were the biggest gainers, rebounding after recent losses as Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz), Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz), HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz), HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) and Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) gained between 0.5 and 4.3 percent.

The sector was also helped by the announcement from Benfield BFD.L and Aon Corp (AOC.N: Quote, Profile, Research, Stock Buzz), one of the world's largest insurance brokers, that the U.S. firm had made a recommended cash offer for the UK-listed broker. [ID:nLM483728]

Mid-cap Benfield leapt nearly 30 percent.

Traders said the rise in financial stocks was also driven by investors covering short positions ahead of the long weekend holiday.

Bradford & Bingley BB.L advanced 1 percent after the mid-cap mortgage lender said underwriters and other banks had entered a lock-up agreement under which they have agreed not to dispose of the 426.7 million new shares for 20 days.

Data showed the UK economy unexpectedly ground to a halt in the second quarter pushing trade-weighted sterling to its lowest in 11-1/2 years <=GBP> and knocking a few points off the FTSE 100.

However, the FTSE soon recovered as investors took the poor data as a sign that the Bank of England would likely deliver interest rate cuts soon.

"The data was weak, but not as weak as some had expected, and it boosts expectations that the Bank of England is going to cut interest rates when headline inflation comes under control," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

Investors will look for further clues on the health of the global economy when the U.S. Federal Reserve's Ben Bernanke speaks on the credit market and the financial sector at 1400 GMT.

Miners were up broadly as gold prices <XAU=> held near a one-week high. BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz) and Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) shrugged off early losses on news that there may be regulatory problems with a planned $128 billion deal.

Eurasian Natural Resources (ENRC.L: Quote, Profile, Research, Stock Buzz), Anglo American (AAL.L: Quote, Profile, Research, Stock Buzz), Antofagasta (ANTO.L: Quote, Profile, Research, Stock Buzz), Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz), Ferrexpo (FXPO.L: Quote, Profile, Research, Stock Buzz) were up between 0.8 and 2.7 percent.