* FTSE 100 up 0.4 percent
* Economically-sensitive banks, miners advance
* Petrofac nears 7-month highs after update
* Aggreko extends falls in robust volume
By Tricia Wright
LONDON, Dec 18 (Reuters) - British shares rose on Tuesday, rebounding from falls in the previous session on signs of progress towards a political compromise on spending cuts and tax rises that threaten the U.S. economy.
The FTSE 100 was up 20.51 points, or 0.4 percent, at 5,932.66 by 0943 GMT, having dropped 0.2 percent on Monday.
Banks helped bolster the blue chips following a rally in their U.S. peers overnight, as did other economically-sensitive stocks such as miners, which have been buoyed lately by improving data from top metals consumer China.
Investors became more hopeful of a U.S. budget deal on Monday night after President Barack Obama made a counter-offer to Republicans that a source said included a change in position on tax hikes for the wealthy.
“Now that a deal looks likely to be done, a strong end to the year for equities is certainly on the cards,” said Craig Erlam, market analyst at Alpari (UK), who reckons a break above the key 6,000 level is in reach before year-end.
Phil Roberts, Barclays Capital’s chief European technical strategist, was similarly optimistic, highlighting price action on Monday when the index made a good recovery from a trough in a clear indication of demand at lower levels.
“The trend is quite small, so that doesn’t necessarily mean it’s going to rocket higher - but it is encouraging,” he said, also targeting 6,000 by the end of the year.
In a relatively quiet day in terms of corporate newsflow, Petrofac rose 1.3 percent, putting it back within sight of seven-month highs, with the energy services company seeing a strong bidding pipeline in 2013.
Among fallers, Aggreko shed 1 percent, extending a 22 percent drop on Monday when the temporary power firm issued its second profit warning in two months.
Trading volume in Aggreko was the biggest among the blue chips at 117 percent of its 90-day daily average, against the FTSE 100 on 15 percent of its 90-day daily average.
As investors became increasingly confident that a budget deal would be reached, defensive sectors such as such as pharmaceuticals and tobacco, which tend be in demand even in harsh economic times, came under pressure.
“When we see a clear break over 6,000 we do expect that there will be a correction early in the new year but as we have turned less defensive in the last few months we expect to see the market continue to make strong progress to the upside,” Atif Latif, director of trading at Guardian Stockbrokers, said.
“We see year-end portfolio adjustments ... with buying by those that missed the initial rally and bought back on the recent dip.”
UK shares showed little reaction to news that British inflation remained stubbornly at its highest level since May in November, reinforcing Bank of England worries that price pressures may prove persistent and possibly deterring some policymakers from approving another cash boost for the economy.
Consumer price inflation unexpectedly held at 2.7 percent after a surprise jump in October, compared to economists’ forecasts for a dip to 2.6 percent. Separate data showed that annual factory-gate inflation eased unexpectedly in November to 2.2 percent - its lowest since July. (Reporting by Tricia Wright; Editing by Ruth Pitchford)