City ahead as mining gains offset finance sector losses

Prudential tumbled 12 per cent in reaction to its 23.5bn approach for the Asian division of stricken US insurer AIG, amid worries over the risks of the mega-deal and the dilutive impact on shareholders of the UK's biggest ever rights issue.

Disappointment with HSBC's annual results also saw financials on the fallers' board, but the wider Footsie rose 51.42 points to 5405.94 – the highest level since the end of January – as firmer commodity prices bolstered mining firms.

Traders said the weekend's earthquake in Chile was likely to support copper prices on the new supply concerns.

Meanwhile, mounting hopes that European countries will announce some sort of rescue deal for Greece and the release of a raft of fairly upbeat manufacturing surveys also saw buoyant world markets.

The Dow Jones Industrial Average rose 0.7 per cent in the first part of its trading day.

US Consumer spending increased slightly faster than expected in January while the US manufacturing sector grew, underscoring views economic recovery is progressing.

The Commerce Department said spending rose 0.5 per cent, increasing for a fourth straight month, after advancing by an upwardly revised 0.3 per cent in December. Consumer spending in December was previously reported to have increased 0.2 per cent.

Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of US economic activity, to increase 0.4 per cent in January.

Polls showing a narrowing Conservative lead and heightened fears of a hung parliament caused the pound to suffer its biggest one-day fall against the dollar for more than a year, before it made back some ground. Sterling was 1.49 dollars at one point, and dropped to 1.10 against the euro.

Prudential shares were initially suspended pending confirmation from the company of its AIG deal. Pru ended the day down 721/2p to 530p.

Stocks fell across the financial sector after the 35.5 billion US dollars (23bn) move was confirmed as investors reduced their exposure in the wake of the announcement.

Aviva was down 151/8p to 3751/4p and Legal & General dropped 4p to finish the session at 731/4p.

HSBC was the other big faller of the session after lukewarm reaction to annual results from the global banking giant.

The firm reported a 56 per cent rise in underlying profits to 8.8bn, but the figures were below analysts' expectations and included a further rise in bad debt charges.

Shares fell 5 per cent, or 375/8p to 682p.

Elsewhere in the sector, Lloyds Banking Group declined 21/4p to 501/4p and Royal Bank of Scotland eased 1p to 363/4p after making gains last week in the wake of full-year results.

Firmer commodity prices and the return of deal activity boosted mining stocks as Kazakhmys lifted 69p to 1410p and Eurasian Natural Resources cheered 39p to 1066p.

They were joined on the way up by Financial Times and Penguin books publisher Pearson, which posted a 13 per cent rise in full-year profits and said it expected another profitable year in 2010.

While the company warned that some of its markets were likely to see continued tough trading conditions, shares rallied 44p to 956p.

The biggest rise of the session in the top flight came from temporary power supplier Aggreko, up 59p to 1034p, after it signed a contract to provided broadcast and technical services at the World Cup in South Africa.