LSE: FTSE 100 index advances on China, ECB stimulus hopes

Britains headline index extended last weeks gains into Monday, buoyed by speculations the Chinese government will step in to stimulate its cooling economy, while the European Central Bank could further ease policy amid fears of deflation. Upbeat data from the US last week kept global equities underpinned, with investors eyeing the upcoming payrolls and manufacturing data, as well as factory orders.

Britains FTSE 100 rose by 0.12% to 6 623.00 points by 10:17 GMT, having shifted in a daily range between 6 659.30 and 6 622.80 points. The blue-chip index rose by 27.26 points, or 0.41% on Friday, and settled at 6 615.58 points, marking a 0.9% weekly advance. It was supported by gains in the mining sector that offset a slump in insurance companies.

The headline index rose after preliminary data by Eurostat showed that inflation in the euro zone fell to an annualized 4-1/2-year low of 0.5% in March, down from 0.7% in February and below analysts expectations for a drop to 0.6%.

Core CPI, which excludes the more volatile food, energy, alcohol and tobacco costs, matched expectations and slid to 0.8%, down from the previous months 1.0% jump. Annual inflation has been in what ECB President Mario Draghi has called a “danger zone” below 1% for six months. Draghi renewed his vow on March 25 to take additional steps to safeguard the single currency blocs economic growth, if such are needed.

The downbeat numbers led some investors to expect fresh measures to be unveiled on ECBs policy meeting on Thursday, taking into account todays inflation numbers. The central bank expects an annual inflation rate of 1.0% in 2014 and 1.3% in 2015, well below its medium-term target.

This comes after data on Friday showed that inflation surprisingly fell in Germany and Spain, pressuring the ECB to take additional measures to avoid deflation. Despite the recent signs of the euro zones economy gaining momentum, including upbeat economic confidence, the near-record unemployment and slacking price growth have put a damper on expansion.

Britains blue-chip index also drew support amid speculation the Chinese government will step in to safeguard the countrys 7.5% annual growth target after recent signs of economic slowdown. Premier Li Keqiang reassured investors that Beijing was ready to safeguard its economic growth target and increase spending in infrastructure, which has the potential to lift prices of metals and boost the region’s stock market. These expectations had supported mining stocks late last week that offset a drop in the insurance segment, which was weighed on by additional regulatory pressure.

China’s manufacturing activity is expected to have contracted for a third month in March, according to a private report by HSBC and Markit Economics, while government data is expected to show minor expansion. Both reports are due early tomorrow.

China’s National Bureau of Statistics is expected to report that factory activity rose to 50.3 this month, up from 50.2 in February, while the HSBC Manufacturing Purchasing Managers’ Index likely remained flat at 48.1, signaling contraction for a third straight month.

Market players awaited the upcoming release of allegedly upbeat US non-farm payrolls and manufacturing activity for March, as well as February factory orders.

Gainers, Losers

FTSE 100s top three gainers for the day were Babcock International Group Plc, Resolution Ltd and Rio Tinto Plc.

Babcock rose by 3.37%, or 43.50 pence, to 1 335.50 pence by 10:09 GMT, while Resolution added 2.31%, or 6.85%, to trade at 303.15 pence. Rio Tinto was up 1.96%, or 64.25 pence, at 3 343.75 pence.

The top losers for the day so far were Sports Direct Intl Plc, Smith & Nephew Plc and Scottish & Southern Energy Plc (SSE).

Sports Direct fell by 2.25% to 846.50 pence by 10:12 GMT, while Smith & Nephew was down 1.47%, or 13.50 pence, to 908.00 pence. SSE declined by 1.39%, or 21.00 pence, to 1 490.00 pence.