Positive economic data lifts London back into the black

The US Commerce Department reported a higher-than-expected rise in orders for manufactured goods, excluding the volatile transportation sector, while a surprise jump in business confidence in Germany also tempered worries about economic recovery.

The FTSE 100 Index received a late session boost and closed 51.40 points up at 5598.48, while Wall Street's Dow Industrial Average was ahead 1.5 per cent.

US traders latched on to a rise in business spending in August as the latest sign the recovery is on firmer ground. That appeared to trump data that showed new US single-family home sales were flat in August.

Buying was broad across multiple US sectors but early indications were that volume was on course for another moderate day despite the near 2 per cent rise in major indexes.

"The volume is somewhat light," said Jim Maguire, Jr, a floor trader on the New York Stock Exchange at EH Smith Jacobs. "It is not as if we are seeing new capital coming into the market. It is again a trader's market."

Positive data from Germany also helped sentiment, with the Munich-based Ifo Institute reporting a rise in its business-sentiment index to 106.8 in September, defying expectations for a drop.

The positive data from the eurozone saw the pound drop against the euro to 1.17, while it was up against the dollar at 1.58.

UK banking stocks clawed back their early losses after a Government inquiry confirmed it would look at the possibility of a break-up of the major high street players.

The Independent Commission on Banking said it would look at separating retail and investment banking operations and added it was also considering ways to improve high street competition, which could see the largest banks forced to offload assets.

HSBC was also in the spotlight as reports said chief executive Michael Geoghegan will quit by the end of the year under a shake-up that is expected to see finance director Douglas Flint succeed Stephen Green.

Earlier this week, HSBC dismissed speculation that Hong Kong-based Mr Geoghegan had threatened to resign unless he was promoted to chairman as "nonsense" and "offensive".

HSBC was 21/4p higher at 6661/4p, despite the rumours over its boardroom plans.

Elsewhere in the sector, Barclays rose 51/2p to 3113/4p, part-nationalised Lloyds Banking Group gained 11/2p to 765/8p and Royal Bank of Scotland also recovered from a weak start to stand 13/8p higher at 491/4p.

ARM Holdings was the Footsie's best-performing blue-chip on renewed bid speculation surrounding the chipmaker.

American software firm Oracle was rumoured to be the most likely candidate for takeover, following comments from the US giant's chief executive that he was keen on new acquisitions and ARM was a potential target. Shares jumped 233/4p to 4145/8p.

Shares in Burberry reached a new high, with traders citing market talk of bid interest from a US private equity firm.

Shares closed 561/2p up at 1002p.

In another quiet session for corporate news, oil and gas explorer Dana Petroleum's days on the stock market looked to be over after South Korea's national oil company came closer to gaining control in a 1.87bn takeover.

Korea National Oil Corporation said its hostile bid for Aberdeen-based Dana had won support from 64.3 per cent of Dana's shareholders, leaving it on the brink of being able to delist the firm.

Dana shares advanced 4p to stand at 1797p.