Positive GDP data propels City into positive territory

The UK figure was revised to 1.2 per cent in the quarter to June, from its initial estimate of 1.1 per cent, while American GDP was cut from 2.4 per cent to 1.6 per cent on an annualised basis – but to a level higher than many economists had forecast.

After losses earlier in the session, the FTSE 100 Index closed up 45.72 points at 5201.56, and at the time of the London markets closing, Wall Street's Dow Jones Industrial Average was up by more than 1 per cent.

Economists warned the UK improvement was unlikely to be repeated in the current quarter to the end of September and said the Government's spending squeeze and VAT hike to 20 per cent would have a major impact on growth next year.

The progress will also depend on the US, where fears have risen in recent weeks that the world's biggest economy could be facing a double-dip recession.

US Federal Reserve chairman Ben Bernanke said more large-scale purchases of securities would be considered if the recovery looked under threat as he described the economic outlook as "uncertain" in an address to a gathering of global policymakers at Jackson Hole, Wyoming.

"The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly," Mr Bernanke said. He made clear, however, that the US central bank has not decided what would prompt additional easing.

"At this juncture, the committee has not agreed on specific criteria or triggers for further action," he said.

Mr Bernanke said the US central bank's purchases of longer-term securities have been effective in lowering borrowing costs and that he believes the benefits of buying more such assets, if needed, would outweigh any disadvantages.

The stronger UK figures saw the pound up against the dollar, at 1.55, but it was down against the euro at 1.21.

The flight from riskier assets earlier in the London session hit commodity and resource stocks, with losses for a number of major mining stocks, including BHP Billiton after a drop of 41/2p to 1798p.

Tullow Oil fell 48p to 1211p – making it the biggest faller in the FTSE 100 Index – after the government in Uganda repossessed the joint venture Kingfisher field in a move seen as a further setback to the country's oil industry.

BP shares remained under pressure with a drop of 6p to 3795/8p, while in the banking sector Royal Bank of Scotland fell 3/8p to 431/2p and Lloyds Banking Group dropped 3/4p to 685/8p.

In corporate results, property website Rightmove reported a 39 per cent rise in half-year profits and raised its dividend, but shares lost ground amid the market uncertainty.

Analysts described the figures as strong and said there was some encouragement from upbeat comments by Rightmove's management, but this failed to stop shares falling 3p to 619p.

Aga Rangemaster shares were 21/2p higher to stand at 88p after the cooker firm returned to profit at the half-year stage and restored its dividend, although analysts warned the company's pension deficit represented a major challenge.

The four biggest Footsie risers of the session were Cable & Wireless, up 31/2p to 661/8p, African Barrick Gold ahead 241/2p to 596p, Aggreko advanced 42p to 1437p, and Vodafone, which closed 41/8p higher at 1535/8p.

The four biggest Footsie fallers were Tullow Oil, BP, BAE Systems slipped 35/8p to 2961/2p, and Royal Bank of Scotland.