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UK FTSE gains, led by commodity stocks

LONDON - Strength in heavyweight commodity stocks lifted Britain’s top share index on Friday after growth rates in China slowed, fuelling expectations of more moves to stimulate the world’s second largest economy.

At 1035 GMT, the FTSE 100 was up 48.78 points, or 0.9 percent, at 5,657.03 regaining much of the prevous session’s 1.0 percent drop when fading hopes of near-term monetary stimulus from the U.S. Federal Reserve knocked sentiment.

Miners and energy stocks, which had been the main fallers on the blue chip index on Thursday, bounced back on Friday after China’s growth rate slowed for a sixth successive quarter.

The data prompted talk of possible further economic stimulus from Beijing, though it also suggested that action taken so far was beginning to stabilise the economy.

Year-on-year growth of 7.6 percent in the second quarter was a whisker above the government’s official 7.5 percent full year target and dragged the first half average down to 7.8 percent - below the 8 percent level that in previous downturns has triggered a robust response from policymakers.

“As with most China data, there is plenty for both optimists and pessimists; the former expect that China will now ease policy yet further, while the latter argue that this giant economy is still headed for a hard landing, with growth slowing markedly as the year continues,” said Chris Beauchamp, Market Analyst at IG Index.

Euro zone debt worries remained the main underlying concern for investors after Moody’s unexpectedly cut Italy’s sovereign rating by two notches overnight.

But Italy overcame an immediate market test after that downgrade, selling the top amount planned of 5.25 billion euros in bonds at an auction on Friday.

Banks, vulnerable to financial stress in the euro zone due to their holdings of sovereign debt, posted gains as investors looked to earnings from U.S. lender Wells Fargo for direction.

JPMorgan Chase & Co reported second quarter earnings and also surprised investors by restating its first quarter results. There was no immediate market reaction.

U.S. stock index futures pointed to a higher open on Wall Street on Friday, with the reaction to the earnings data from the banking sector key for direction, along with June U.S. producer prices data due at 1230 GMT.

UBS for bluechips

UBS maintained its preference for the FTSE 100 relative to the mid-cap FTSE 250, betting on blue-chips’ outperformance in a weak economic backdrop, particularly when the slowdown is concentrated in Europe and the UK, where the FTSE 250 has greater exposure.

The bank says against a low-growth, volatile backdrop it continues to favour dividends as a theme. The FTSE 100 offers a 4.4 percent dividend yield, 90 basis points higher than that on the FTSE 250, which is nearly the widest gap in 20 years.

Among the blue chip fallers, utilities were under pressure as investors’ appetite for riskier sectors such as commoditiy stocks and banks returned, with broker comment blighting some.

Scottish & Southern Energy shed 1.1 percent as Citigroup downgraded its rating to “sell” from “neutral”.

A downgrade by Barclays weighed on United Utilities, off 0.5 percent, with the broker chopping its stance to “underweight” from “equal-weight” in a European sector review.