Fed meeting hanging over markets

LONDON FTSE 100 CLOSE 5,694.62 +19.46

GOOD news is bad news if it means the American Fed will cut the amount of money it will inevitably pump into the economy this week. In a "choppy" day for the FTSE, gains made by miners were tempered as investors looked ahead to the outcome of the US Federal Reserve's meeting tomorrow. Miners rose after data showing demand in China, the world's biggest consumer of metals, was holding up.

The world's biggest integrated zinc producer, Xstrata, topped the FTSE leaderboard, up 3.7 per cent, supported by strong metal prices as the dollar weakened on the prospect of more quantitative easing from the United States.

The FTSE 100 closed 19.46 points, or 0.3 per cent, higher at 5,694.62, having fallen 1.2 per cent last week. It earlier touched an intra-day high of 5,733.01.

"Today's movements though are indicative of how apprehensive investors are this week as there are so many uncertainties until key economic releases are out and the US mid-term elections are over," Angus Campbell, head of sales at Capital Spreads, said.

"The fact that we retreated from the highs of the morning following the UK data gives further evidence that good news is bad news if it means less QE." The pace of growth in the US manufacturing sector quickened unexpectedly in October, while US construction spending also surprised by rising in September as investment in public projects touched the highest level in more than a year.

Across the pond, a survey of purchasing managers showed British manufacturing growth accelerated last month, all but ending any hopes that the Bank of England would extend its own QE programme before the end of 2010, traders said.

Banks gained, including Lloyds Banking Group which added 1 per cent ahead of its trading update today. Royal Bank of Scotland also rose 2.2 per cent ahead of its update on Friday.

Technology firm Smiths Group advanced 3.4 per cent, making the firm among the top risers in the FTSE 100, with traders citing a heightened security alert after two bombs were found on US-bound planes.

Serco Group dropped 4.4 per cent after weekend newspaper reports about a letter the firm sent to suppliers seeking a 2.5 per cent rebate on the 2010 full year spend, with Numis cutting its rating to "reduce" from "hold".

Glasgow engineering firm Weir Group shed 1.4 per cent on profit-taking after it issued a trading update.

Jonathan Jackson, head of equities at broker Killik & Co, said Weir was set to "pause for breath" as the stock already took into account the prospect of "minimal" future upgrades.

Another faller was North Sea explorer Melrose Resources, which was dropped by its farm-in partner, Canadian firm Sterling Resources, after failing to get exploration approval on blocks offshore Romania. Melrose fell 16.9 per cent to 270p.

"This news is not good for Melrose with the Romanian developments and exploration upside a key part of the company's forward growth strategy," analyst Richard Rose of Oriel Securities wrote in a note, although the broker maintained a "buy" on the stock.