UK Stocks Rise on Rio Tinto Stake Purchase

123jump.com Staff
01 Feb, 2008
New York City

A surprise stake at a 21% premium in Rio Tinto but a team of two aluminum companies lifted the mood investors. Stocks rallied led by asurge in mining companies.Rio Tinto increaesd 13%, BHP soared 10%, Vedanta Resources added 9%, and Antofagasta increased 7%. Xstrata, involved in talks with Rio added 5%. Purchasing Managers Index showed a decline in manufacturing activity in January. British Land fell on downgrade. Biffa and FKI rose on takeover speculations.

[R]3:00PM New York, 8:00PM London - U.K. current account deficit to reach £16 billion or 1.5% of GDP.[/R]

Stocks in London advanced on the rise in commodity stocks after Chinese company Chinalco and Alcoa purchased a 12% stake for $14 billion in Rio Tinto. The surprise move is likely to complicate and may even thwart BHP Billiton from making a bid for Rio Tinto.

In London trading FTSE 100 Index rose 2.54% or 149.4 to 6, 029.20.

Of the 102 FTSE100 Index stocks 82 gained, 18 declined, and 2 were unchanged. Rio Tinto led advancing stocks with a surge of 13%.

The National Institute of Economic and Social Research reported today on its website that the economic growth is expected to slow to 2% this year and rise to 2.4% in 2009, adding that performance will be weak in the first half of the year on the back of a quarterly drop of below 0.4%.

The institute also forecasted that consumer spending will drop from 3.2% growth in 2007 to 1.9% rise in 2008 and private housing investment will decline by 1.3% this year from 3.8% growth in 2007.

Furthermore, it is expected that business investment growth will decline from 6.8% last year to 3.5% this year and that current financial year’s public sector current account deficit will reach £16 billion or 1.2% of GDP.

According to economic and social research body, net trade will contribute 0.6% to growth next year.

Commented the institute: “Consumer price inflation will rise until the summer as sterling’s depreciation pushes up import prices and higher oil prices drive up household energy bills and transport costs. Inflationary pressures are also present because the economy was operating above capacity in 2007.”

The Chartered Institute of Purchasing & Supply reported today on its website that according to the latest Purchasing Managers'' Index for manufacturing the number of new orders index in January fell to 49.7, indicating contraction, for the first time since July 2005. The index for manufacturing growth fell to 50.6 in January declined from 52.4 in December. The index for ouput prices rose to 57.9, record level since the tracking began in 1999.

New export orders index fell to 47.6 in January as economic conditions weakened in the U.S. Input costs reached a three-year high of 69.3 on rising energy costs and increasing wages. Manufacturing is 15% of the total economic activity in the U.K.

Of the FTSE 100 stocks Rio Tinto Plc led advancers with a rise of 12.99% followed by rises in BHP Billiton of 9.82%, in Vedanta Resources of 8.89%, in Taylor Wimpey of 7.64%, and in Antofagasta of 7.28%.

Rio Tinto Plc advanced after China controlled Aluminum company teamed with Alcoa to purchase 12% stake for $14 billion. Other commodity stocks rose as well. Anglo America Plc gained 5.82% and Xstrata Plc increased 4.60%.

British Airways led decliners in the FTSE 100 Index stocks with a drop of 4.22% followed by losses in South & Nephew of 3.89%, in Marks & Spencer of 2.14%, in British Land Company of 2.13%, and in Friends Provident Plc of 2.02%.

British Airways declined after Chief Executive Officer Willie Walsh said future earnings faced the threat of rising fuel prices as jet fuel costs increased by £71 million pounds in the third quarter and may be as high as £2.1 billion for the year. Net income in the nine months ending in December rose to £623 million pounds from £509 million a year ago.

Biffa Plc, the trash hauler rose 15.5 p to 319.5, on speculation the company may receive a second takeover bid. FKI Plc, Europe''s biggest maker of wire rope for ships and oil rigs, surged 19.75 p to 67 p, a record gain of 33%, on preliminary takeover overtures.

British Land Co., the biggest office landlord, fell 19 p to 991 after Credit Suisse Group downgraded the stock to ``neutral'''' from ``outperform.''''

Cranswick Plc declined 149 pence to 620. Total sales for the Company in the quarter to 31 December 2007 were £158m, an increase of 18 per cent compared to the same period last year after adjusting for the impact of the sale of the animal feeds business in May 2007. Stock fell 19% after the earnings release.