FTSE higher on mining bid talk

London equities made steady progress on Friday after miners benefited from fresh bid speculation, but further turbulence in the financial sector cast a shadow over sentiment.

The FTSE 100 rose 1.2 per cent to 5,975.0, an advance of 68 points after a volatile morning. The Mid-cap FTSE 250 was 1 per cent higher at 9,756.8.

Weaker-than-forecast retail sales in December added to hopes for a rate cut in February. The Office of National Statistics said the measure of consumer spending fell 0.4 per cent from November, defying expectations of a 0.2 per cent rise.

London's mining sector once more dominated the upside. There was fresh rumours that BHP Billiton (NYSE:BHP) was preparing to sweeten its unsolicited offer for peer Rio Tinto, indicating the inclusion of a significant cash element. Shares in Rio rose 2.3 per cent to £46.04, whilst BHP rose 0.2 per cent to £13.50.

Wall Street screens were awash with red overnight, despite hopes for an aggressive fiscal action plan to ward off the threat of a recession. A closely watched survey of regional US manufacturing activity by the Philadelphia Federal Reserve, moved into recession territory and US bond insurers faced the threat of losing their triple-A ratings. The S&P 500 index ended down by 2.9 per cent at 1,333.3, its lowest close in 15 months.

The growing sense of uncertainty hit financial services stocks in the UK.

New Star Asset Management, a fund manager heavily exposed to the commercial property sector, crashed 49p or 33 per cent to 98p, after warning this year's profits would be "significantly lower" than 2007 and cutting its dividend.

It added that its European mutual funds and some of its UK mutual funds were badly positioned for the combination of the credit squeeze and high natural resource prices in the second half of 2007. As a consequence, the majority of New Star's UK and European equity mutual funds significantly underperformed their peers.

Interdealer broker Icap was the biggest loser on the FTSE 100, down 3.9 per cent at 625p. Fund manager Schroders fell 4 per cent to 935p and Barclays (NYSE:BCS) was 1.6 per cent softer at 458½p.

Carphone Warehouse moved either side of the flatline after it missed forecasts for the number of network connections it sold during the peak Christmas trading period, but stood by its existing profit guidance for the full-year. in mid-morning trade, its shares were 3 per cent higher at 314p.

News of further emergency engineering work at one of British Energy's ageing nuclear reactors, costing £50m at its Heysham plant in Lancashire, sent shares in the company 1.6 per cent lower to 511½p.

Oil companies stood out on the downside as crude drifted under $90 per barrel. BP lost 0.5 per cent to 551p, with Royal Dutch Shell 0.8 per cent weaker at £18.96. Cairn Energy lost 0.5 per cent to £24.88.