April 9, 2013 / 8:26 AM / in 5 years

Britain's FTSE gains as miners boosted by China, Alcoa

* FTSE 100 gains 0.7 percent

* Top risers populated by commodity-related stocks

* China inflation data leaves room for monetary easing

* Defensives, led by Diageo, suffer

By Alistair Smout

LONDON, April 9 (Reuters) - Britain’s top share index rose on Tuesday, as heavyweight miners led the index higher following encouraging data out of China and a good start to the U.S. earnings season in the sector.

Inflation eased off in China, leaving the door open for a further relaxation in monetary policy in the world’s number one metals consumer, while bellwether Alcoa kicked off the U.S. earnings season with rising profits.

Miners rose 2.9 percent, gaining for the second straight day and continuing to recover off 8 month lows set at the end of last week.

“The mining sector will continue to be driven by the global macro economic picture, chiefly China, and given some of the sell-offs we’ve been seeing, this better data is clearly a positive for the sector,” Henk Potts, equity strategist at Barclays Wealth, said.

“China consumes 40 percent of the world’s industrial metals, so it’s no surprise that commodity and mining stocks are driven so much by the outlook for China.”

At 0802 GMT, the FTSE 100 was up 43.65 points, or 0.7 percent, at 6320.59 points, with mining and commodity stocks contributing 17 points to the rise.

Eleven of the top 13 risers were drawn from the commodity sector, with Vedanta helped by an oil discovery at its Cairn India operations.

In general, cyclical sectors that rise with optimism over the economy outperformed those seen as defensive plays against economic uncertainty, with banks climbing 1.1 percent.

This counters the unusual theme which has characterised this year, where defensive stocks have outperformed cyclical counterparts in rising markets.

The beverage sector has risen 14.5 percent this year, outperforming the FTSE’s rise of 7.2 percent. The broader market has managed gains in spite of a 9.9 percent slump in the mining sector.

However, Tuesday saw a rotation out of highly-rated defensive stocks, with beverages dropping 0.8 percent and Diageo , up 11.5 percent on the year, down 1.3 percent - the top FTSE 100 faller.

“This is the point of the year at which we thought investors would start rotating out of quality defensives, which have outperformed hugely in the first quarter, which is unusual given the broader market has seen gains,” Jeremy Batstone-Carr, analyst at Charles Stanley, said.

“Diageo is very highly rated at the moment, and the shrewd money might be rotating into the mining sector after this very good run.”

Diageo’s fall came despite price target hikes by both Nomura and Jefferies. However, it ranks poorly on a range of valuation scores, scoring just 13 out of 100 on the Thomson Reuters StarMine Relative Valuation model. (Editing by Mark Potter)

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