UK blue-chips reached their highest closing levels in a month on Wednesday as fears that Spain’s sovereign rating could be downgraded to junk status turned out to be as yet unfounded, while global economic data also provided some reassurance.
By close of play, the FTSE 100 index had taken on 40 points to settle 0.7% higher at 5,911, while the FTSE 250 index had added 61 points or 0.5% to close at 12,046.
Moody’s Investors Service today reaffirmed Spain’s sovereign rating at Baa3, thus keeping it one notch away from junk status and elevating investor confidence. The ratings agency cited the country’s new austerity package, Europe’s improved bond-market liquidity and the recapitalisation of Spanish banks as reasons for not changing its Spanish rating.
Market sentiment was also buoyed by UK unemployment figures, which showed an unexpected fall in the jobless rate to 7.9%.
“The real eye catcher though was a 212,000 increase in employment over the latest three months,” commented Philip Shaw of Investec. “Job growth over the year now stands at 510,000, or 1.8%.” Meanwhile, across the pond, a jump in new housing starts helped fuel hopes that the US economy is on more solid ground.
Looking ahead, Thursday sees the start of an eagerly anticipated two-day European summit, from which investors will be hoping to garner some insights into whether decisive action is on the EU horizon.
Homing in on London trading, the upbeat mood helped attract investors to riskier segments of the equity market, such that mining companies dominated the leaderboard. Top performers on Wednesday included Eurasian Natural Resources (ENRC), Kazakhmys (KAZ) and 
Anglo American (AAL), each of which climbed 5.3%-7.3% higher.
Sector newsflow came from Xstrata (XTA), which ticked up 3.1% after reporting rising coal output in the third quarter compared to the previous year, though copper production was reduced due to the transition from old miners to new ones. The company said 10 major projects will be commissioned on schedule by the end of 2012, helping boost output across every commodity business. Glencore (GLEN), which is due to merge with Xstrata once shareholder and regulatory approval has been given, added 2.6% on the London Stock Exchange. Firmer base and precious metals prices also offered support.
Away from natural resources, retailers were also in demand and Tesco (TSCO) outperformed following a resoundingly upbeat analyst note from UBS. Shares in Tesco ended the session up 2.7%, while industry peers Morrison Supermarkets (MRW) and J Sainsbury (SBRY) took on 0.7% and 0.4%, respectively.
On the downside, Diageo (DGE) shares suffered a relatively sharp drop on the back of today’s interim management statement, in which the firm’s European sales were shown to have dipped 1% and CEO Paul Walsh said he continues “to be aware of the uneven nature of the global economy.” But by the end of the day, shareholders had warmed to the trading update and shares closed just 0.8% lighter as investors digested the news that the beverage manufacturer is targeting sales and operating margin growth in the region of 6% in the medium term, with EPS expected to rise at a double-digit pace.
