LONDON: Hopes for another stimulus package from the US central bank drove an advance on Britain's top share index on Wednesday, although traders questioned the sustainability of the rally given the weakening economic backdrop.
The FTSE 100 had risen 51.69 points, or 1 percent, to 5,320.35 by 1136 GMT, albeit in thin volumes, at 30.8 percent of the 90-day average.
The mood has darkened on both sides of the Atlantic.
A survey in the UK on Wednesday showed that confidence among British consumers fell to its lowest level in four months in August, a sign they will keep a tight rein on spending, hampering a fragile economic recovery.
This followed US figures on Tuesday showing consumer confidence slid in August to its lowest level in two years which, along with minutes from the latest Federal Reserve meeting, cemented a growing belief the Fed will have to intervene with aggressive steps when it meets in late September.
"The consumer's in debt up to its eyeballs, and you can't spend what you haven't got," Michael Hewson, analyst at CMC Markets, said.
"And against a backdrop of slowing growth and rising unemployment, I don't think consumers really have an awful lot to be confident about at the moment."
Concerns over the strength of the global economy, coupled with the European sovereign debt crisis, have in fact put Britain's top share index on track for its biggest monthly fall since October 2008, just after the collapse of Lehman Brothers.
Investors were readying themselves for a batch of US data, including the ADP National Employment survey for August at 1215 GMT -- a key precursor to Friday's crucial August jobs report, which could intensify investors' belief in further US stimulus.
US stock index futures pointed to a higher opening on Wall Street on Wednesday.
"We might be in a position where bad news is actually positive because it might force the Fed to be a bit more QE-focused when they meet in September," Mic Mills, head of electronic trading at ETX Capital, said.
To reflect a new, more subdued second half of the year, Citigroup has amended forecasts and price targets for UK asset managers, with Schroders among the biggest blue-chip casualties, off 1.6 percent, as the broker cut its rating to "hold".
"Short term: Falling markets mean lower AUM, lower management fees, lower performance fees," Citi said in a note.
"Longer term, down markets and high volatility increase investor fear, leading to subdued and/or negative fund flows. We expect this to delay AUM (assets under management) and revenue recovery, even if markets recover swiftly from here."
The broker said that, for a falling market, its top picks would be Man Group , citing its flagship AHL fund as a catalyst, and midcap Ashmore , which Citi lifted to "buy" on valuation grounds.
Shares in the pair enjoyed respective gains of 1.7 percent and 1.6 percent, with Man Group also given a fillip, according to traders, from a Morgan Stanley upgrade to "overweight".
British Land and Land Securities shed 2.2 percent and 1 percent respectively, with traders citing the impact of double-downgrades for both by Morgan Stanley in a cautious review of the European real estate sector.
Mining stocks were the main force behind the UK blue-chip index's rise, building on an advance from the previous session as bargain hunters moved in on the beleaguered sector which has fallen nearly 12 percent in August.
Smith & Nephew was the standout individual performer, up 5.1 percent and extending Tuesday's gains, as long-standing bid talk was revived and after Deutsche Bank initiated coverage with a "buy" rating on Tuesday.
US rivals Stryker Corp and Biomet were mentioned in press reports as possible suitors for Smith & Nephew, which reportedly attracted the interest of Johnson & Johnson late last year before it bought Switzerland's Synthes instead.
Copyright Reuters, 2011
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