A late afternoon rally nudged Britain's top share index into positive territory on Tuesday, as investors eyed geopolitical turmoil in the Arab world and favoured defensive stocks. The FTSE 100 closed 0.98 point firmer at 5,974.76, having flirted with the key psychological 6,000 level earlier in the session after Kuwait's oil minister said Opec was considering boosting production.
While this helped pare crude prices, traders said investors were focused on longer-term implications as Libya threatens to dissolve into civil war, and as tensions persist elsewhere in the region. After Tuesday's short rally, analysts warned that a break above February's highs was crucial for the index to maintain its upward momentum.
"I think we could well have seen the highs at 6,100. If the FTSE doesn't break above those highs in the next month or so, I think we could see a correction lower down to round about 5,600," Michael Hewson, market analyst at CMC Markets, said. Among the favoured equity plays on Tuesday was a move from more cyclical stocks into defensives, said Manoj Ladwa, senior trader at ETX Capital.
"I know Morgan Stanley came out with a note earlier on recommending that clients move that way as well, so that's certainly a theme that we're seeing today." Defensive telecommunication firms Vodafone and BT Group were among the top blue chip performers, up 1.8 percent and 4 percent respectively in high volumes, with traders citing Morgan Stanley upgrades on the pair. And traders said the broker raised its overall stance on European telecoms services to "attractive", because it thinks downside risks in the sector are less pronounced.
Miners knocked the most points off the index, fuelled by fears over a further tightening in China's monetary policy ahead of Chinese inflation data due on Friday. The weakness from miners was "a continuation of the sell China/buy the States trade," Jim Wood-Smith, head of research at Williams de Broe, said.
"China's got an inflation problem. The authorities have got the brakes on, they're going to put them on even harder and we're at a time of relatively decelerating Chinese growth and rapidly accelerating US growth." Randgold Resources was the sharpest blue chip faller, dropping 8.2 percent, with traders saying trouble in Ivory Coast, where it has operations, was hurting it.
Insurer Old Mutual gained 3.3 percent after narrowly beating expectations with a 14 percent increase in profit and saying it was sticking by a three-year strategy aimed at simplifying its structure. HSBC added 2 percent. Traders said reports the bank may be mulling a move to Hong Kong were positive for the stock as such a development would lead to lower costs. Underlining the parlous state of the domestic economy, British retail sales fell last month, house prices continued to drop, and companies only expect to hire a small number of extra staff, three surveys released overnight found.
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