US growth gives Footsie a kick

SHARES in London jumped sharply higher yesterday after news that the US economy had grown at its fastest pace in six years.

The FTSE 100 has been drifting in recent days, with news of higher-than-expected unemployment in the US calling into question the strength of its recovery.

Official figures showed the US economy grew at an annualised rate of 5.7 per cent in the final three months of 2009, well ahead of the 4.8 per cent economists had expected.

David Jones, chief market strategist at IG Index, said the US growth figures seemed to "put firmly to rest" any worries that America's economy could slip back into recession.

Opening at its lowest level for almost three months, the FTSE 100 was more than 80 points ahead at one point yesterday afternoon, closing up 42.8 points higher at 5,188.5. But the leading index has still fallen by 4 per cent in January.

Despite the focus on the US, hotel and caf operator Whitbread topped the FTSE 100 risers after analysts reacted positively to a presentation to the City on Thursday.

The presentation prompted analysts at Barclays Capital to raise earnings forecasts for the next four years and up its target price on Whitbread by 1 to 1,700p. BarCap said: "We continue to see upside risk to forecasts and Whitbread remains one of our top picks in the leisure sector."

Shares in the owner of the Costa Coffee chain rose 45p to 1,409p.

Mining companies made back some of the losses of earlier sessions, which had been driven by fears that China's banking system could be forced to recapitalise, leading to a potential credit crunch in country's fast-growing economy.

Xstrata climbed 27p to 1,031.5p and Eurasian Natural Resources closed up 16.5p at 909p. Silver producer Fresnillo was down, however, shedding 5.5p to 671.5p.

Aggreko, the temporary power provider, rose 20p to 904.5p, boosted by renewed confidence about the US. While the US market is less important to the increasingly international Glasgow-based group, it still has a large construction-related business in North America.

Banks recovered from Thursday's sharp losses, which were driven by a warning from Standard & Poor's that the UK's banking system is not among the world's most stable.

Barclays closed 5.6p higher at 270.55p, while HSBC rose 17.3p to 677.3p.

Part-nationalised Royal Bank of Scotland shed 0.27p to 32.3p as fears persisted that US president Barack Obama's banking reform may cut the value of its commodity trading business.

Interdealer broker ICAP, which has also been hit by fears of a fall in trading levels, was the biggest faller in the FTSE 100, down 10.5p at 371.2p.

BSkyB, which rose on Thursday after a jump in HD customers, fell 6.5p to 533.5p yesterday.

Oil majors were in the spotlight as crude prices edged up from their six-week low below $74 a barrel following the output data from the US.

Shell and BP – both due to announce annual results next week – were 10.5p higher at 1,673p and 0.1p lower at 586.9p respectively. Cairn Energy, Scotland's largest oil company, rose 3.1p to 325p.

Dana Petroleum dropped 33p to 1,044p after the Aberdeen-based mid-cap company cut its production guidance for 2010.

Retailers had a mixed session despite department store chain John Lewis reporting that last week's milder weather helped sales rise by 15.7 per cent.

Marks & Spencer rose 1 per cent in the wake of the news, but gave back most of the gains later to stand 1.2p up at 348.8p, while supermarket giant Tesco climbed 3.95p to 425.55p.