European shares hit their highest closing level in nearly a week on Tuesday, with miners and oil firms contributing to the bulk of gains as commodity prices were boosted by strong manufacturing data from around the world.
The pan-European FTSEurofirst 300 index provisionally closed 0.8% higher at 1,140.77 points, with Britain's FTSE 100, which has a large proportion of commodity shares, rising 1.7% on its first trading day of the year.
Commodity stocks were buoyed by expectations for upbeat demand for raw materials following strong manufacturing data from China, the United States and Europe, with the STOXX Europe 600 oil and gas index up 2.3% as crude prices hovered near 27-month highs.
"It has been a great start to the year, kicked off by commodity stocks, but I think the markets could start to slow a bit. European debt problems are going to be the major story that will put us in a risk-off trade," said James Hughes, market analyst at CMC Markets.
BP climbed more than 5% and earlier hit a six-month high after the Daily Mail newspaper reported rival Royal Dutch Shell considered a takeover bid, and as investors were reassured by comments that suggested damages from its oil spill could be half the expected level.
Shell shares rose 1.1%, with peer BG Group ahead 3.3 percent as crude prices pushed up towards $92 a barrel, the highest level in more than two years.
Britain's leading share index stormed higher by midday, pushing back above 6,000 to levels not seen for 31 months, boosted by strength in heavyweight commodity issues and banks and recouping the losses it registered on December 31.
"The FTSE 100 has rallied an average of 1.3% on the first trading day of the year for the last five years, and so today's rally, whilst expected, is above average in terms of strength and will give investors a nice boost," said Joshua Raymond, market strategist at City Index.
COPPER ON THE RISE
Copper prices hit a record high of $9,699 a tonne in London on Tuesday, buoyed by positive manufacturing data across the world, with Xstrata adding 4.8% and silver miner Fresnillo gaining 4.8%.
The metal used in power and construction had earlier reached a record $9,754 a tonne. Other metals also rose, with nickel touching its highest since May at $25,300 a tonne and lead hitting its highest since mid-November at $2,590.
"The data was stronger than expected…we will continue to see strong industrial metals prices as the global economy continues to recover strongly from 24 months ago," said analyst Robin Bhar at Credit Agricole.
Copper is widely expected to build on its nearly uninterrupted rally in the second half of 2010 as ore grades decline, new mines remain scarce and top buyer China grows.
The world's No. 3 copper mine, Chile's Collahuasi, has restarted exports via an alternative port. But deliveries are not yet big enough to lift a two-week-old force majeure, prompted by an accident at the mine's main sea terminal, that has rattled metal markets.
Among other metals, nickel changed hands last at $25,114 a tonne from $24,950.
"It's pretty much tracking other higher metals, rather than there being specific fundamental news," a second trader said.
Aluminium traded at $2,479.25 versus Friday's close of $2,467 a tonne. It rose to $2,495 earlier, just $5 short of two-year highs at $2,500 from November. Zinc traded at $2,469 from $2,440. Tin stood at $27,000 a tonne versus $26,870. It is nearing record highs of $27,500 from November 9.
On Monday, data from the U.S. showed its manufacturing sector grew for a 17th consecutive month in December, while U.S. construction spending increased in November to its highest level since June.
Meanwhile, China's factory inflation cooled in December, while manufacturing in Europe accelerated.
But gold miner Randgold Resources missed out on the sector's gains, down 0.7% as the price of the yellow metal dipped back after a strong run, hit by a firmer dollar.
LENDERS SUPPORTED
Banks also saw good support in the markets, bouncing higher as worries over euro zone sovereign debt faded further into the background, with Royal Bank of Scotland adding 4.7% and Barclays up 3.5%.
An Exane BNP Paribas upgrade to "outperform" also helped RBS, with the broker saying a sharp sell-off on the bank's exposure to debt-hit Ireland presents a buying opportunity.
Among individual blue-chip gainers, Carnival Corp. took on 4% after being upgraded to "buy" from "hold" by Deutsche Bank with an increased target of 3,700 pence.
There were few main board fallers. Main losers were stocks seen as defensive, as investors' risk appetite returned. Food producer AB Foods was down 0.3%, while utility International Power sipped 0.1%.
British manufacturing activity grew at its fastest pace in more than 16 years in December, and firms' costs rose at a record pace, suggesting at least one sector of the economy may be ready for higher interest rates before the end of 2011.
And British mortgage approvals rose unexpectedly in November to their highest since July while unsecured consumer lending suffered its biggest monthly fall since August, Bank of England figures showed on Tuesday.
