Euro shines, gold glitters as dollar sags on jobs data

• Disappointing US jobs figures dampen market gains
• Markets bask in the glow of the European Central Bank's bond buying programme as the FTSE 100 moves closer to regaining 5,800
• Good news on the economy as industrial output surges in July
• North Sea oil companies rise as the chancellor tries to undo some of last year's tax hike on the sector
• Glencore improves the terms of its merger offer to Xstrata shareholders

16.55: Weak US jobs data this afternoon have further dampened down stock markets after yesterday’s dramatic rally, but currency markets are still in turmoil after the European Central Bank (ECB)’s announcement of plans to intervene in the government bonds market.

The euro soared 1.26% to $1.2788 against the dollar as the ECB’s move threw a life line to the single currency and led Spanish government bond yields to fall back to 5.75%, giving Mariano Rajoy’s government some much-needed breathing space. This is a long way from the 7% crisis level Spanish sovereign debt yields reached over the summer.

Downward pressure on the dollar came from the bad payrolls number – an increase of just 96,000 jobs in August – which prompted suggestions that the US Federal Reserve may launch a further round of dollar creation or quantitative easing next week in order to stimulate the economy.

The pound also strengthened 0.5% to $1.6018, boosted by good industrial production figures earlier in the day.

Dollar weakness also enabled gold to continue its rally, advancing nearly 2% to $1,735.6 an ounce.

The US stock market rose hesitantly as it mulled the possibility of QE3 and considered the depressing jobs data, which only showed a drop in the unemployment rate because so many people have given up looking for work – and have therefore dropped out of the figures.

The S&P 500 put on three points or 0.2% to 1,435 while in Europe markets were quiet, with the Euronext 100 becalmed at 669 while in the UK the FTSE 100 shied away from the 5,800 barrier as it added just seven points or 0.1% to close at 5,784.

Standard Life welcomes Glencore sweetener

15.00: David Cumming, head of equities at Standard Life Investments and an early critic of the Glenstrata tie-up, has thrown his weight behind Glencore's sweetened offer.

'We are supportive of the improved terms and the changes to the executive governance arrangements,' said Cumming who oversees 1.42% of Xstrata and 0.81% of Glencore in his group's funds. 'The deal will, we believe, enhance the growth prospects of the combined group and consequently, as shareholders both of Xstrata and Glencore, we are pleased with the proposed outcome.'

Glasenberg blinks as Glencore raises Xstrata bid

13.35: Finally commodity trader Glencore has done the decent thing and raised its offer for miner Xstrata.

Shares in Glencore (GLEN.L) tumbled nearly 4% or 15p to 377p after Xstrata said its suitor was prepared to offer 3.05 shares for every Xstrata share, up from 2.8 per share, in order to salvage the deal.

Xstrata (XTA.L) shares leaped 85 or 78.5p to £10.57 at the news and as Glencore cancelled a shareholder vote on the deal and said it would convene at a later date.

In a further twist Glencore chief executive Ivan Glasenberg (pictured) will become chief executive of the combined group instead of Xstrata boss Mick Davis as originally planned.

The merger, now worth about $37 billion (£23 billion), is a long-term goal of both companies and was a big reason in Glencore floating on the stock market this year. However, it has met resistance from Xstrata shareholders including the Qatari and Norwegian sovereign wealth funds who built up their stakes in the company in order to block the deal unless Glencore improved the terms of the all-share bid.

This story has further to run as Glencore is also considering pitching the deal as a straightforward takeover, rather than its current structure as a scheme of arrangement. This would make it easier for Glencore to force it through.

The FTSE 100 is trading 18 points or 0.3% up at 5,795 as markets continue to bask in the post Draghi OMT glow (see below).

For more details of today's risers and fallers see our FTSE pages.

UK industrial output surges after Jubilee lull

13.00: The pressure on Osborne to find the ‘plan B’ for the economy recedes a little after UK industrial figures for July bounced back strongly after the lull caused by the Queen's Diamond Jubilee celebrations and the extra bank holiday in June.

Industrial production rose 2.9% in July, its largest monthly rise since February 1987, driven by a 3.2% surge in manufacturing output, which was the largest increase since July 2002, said the Office for National Statistics.

This followed June when production fell 2.5% in June and manufacturing output slumped 2.9%.

The less volatile three-month figures showed industrial production rising 0.1%, which while modest is the first quarterly increase since February 2011. Manufacturing output rose 0.2% in its largest quarterly increase for a year.

However, inflationary pressures from high oil prices remain with the prices paid by manufacturers rising 1.4% in August on a year ago. Meanwhile, the annual rate of inflation in producers’ selling prices hit a three-month high of 2.2%, up from 1.7% in July.

David Kern, chief economist at the British Chambers of Commerce (BCC), said:

‘It was widely expected that manufacturing output would recover in July after recording a large decline in June, but the increase was considerably larger than anticipated. However, longer-term trends in manufacturing are still disappointing, with output falling in year-on-year terms, and there is the prospect of a decline in 2012 as a whole. But the figures today reinforce the potential for the manufacturing sector to recover.’

Echoing comments by Ros Altmann at Saga today, Kern urged the government to focus less on quantitative easing (QE) and do more to encourage lending to businesses and investment in manufacturing and infrastructure.

Osborne softens Budget hit on North Sea companies

12.30: Chancellor George Osborne has retracted some of the tax rises he imposed on North Sea oil explorers last year as he desperately seeks ways to stimulate the economy.

Shares in Enquest (ENQ.L) gained 2.7% or 3.2p to 119.3p, Salamander Energy (SMDR.L) advanced 1.3% or 2.5p to 198p and Premier Oil (PMO.L) added 0.8% or 3.1p to 388.1p after the Treasury said a new tax allowance would shield up to £250 million of income from some projects in brown fields, or older sites in the North Sea.

Osborne’s decision in his 2011 Budget to hike tax on North Sea output to 32% from 20% exacerbated a long-term decline in UK oil and gas production and dented economic growth last year.

Numis analyst Sanjeev Bahl said: 'Finally, the government is waking up to the fact that an 18% year-on-year reduction in North Sea production needs to be addressed and is back-pedalling against the recent 12% tax hike.'

FTSE flirts with 5,800 on ECB euphoria

10.40: The FTSE 100 continues to flirt with 5,800, up 18 points at 5,795 having breached the testing level earlier in the session.

9.20: Euphoria over European Central Bank head Mario Draghi's bond proposal saw the FTSE 100 surge 2% yesterday afternoon.

But those leading the pack recorded much bigger gains: steelmaker EVRAZ (EVRE.L), Lloyds (LLOY.L) and gold producer Polymetal (POLYP.L) headed up the table, each taking on more than 6%.

Yesterday's 10 biggest FTSE 100 gainers

8.34: The FTSE 100 is up 24 points at 5,802 as the euphoria of last yesterday's European Central Bank bond proposal continues to fire markets with embattled Barclays (BARC.L) the early pacesetter.

Shares in the embattled lender were up 9.15p, or 4.74%, at 202.2p as the FSA demanded an overhaul at the bank. Its rivals were also in demand, with RBS (RBS.L) up 3.55% at 241.8p and Lloyds (LLOY.L) up 3.2% at 37.35p.  

8.06: The FTSE 100 has edged up another eight points to stand to stand at 5,785.

In Europe the FTSEurofirst 300 index was 0.3% higher at 1,107. Earlier in the session it hit 1,108, its highest level since 21 August.

This came on the back of a 2% surge yesterday amid euphoria about European Central Bank (ECB) chief Mario Draghi's outline for an 'outright monetary transactions' (OMT) plan to buy government debt to resolve the eurozone crisis.

The joy was also felt across the Atlantic, where the S&P 500 surged to its highest level since 2008. Asian markets also saw strong gains in the relief rally.

Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, summed up the mood in a note last night: 'The markets are right to respond positively to the potential for unlimited ECB intervention in peripheral bond markets with no seniority.

'It's a good step towards debt mutualisation via the ECB balance sheet. Intervention, when it comes, could also trigger a pick up in business confidence in core countries as fears of a break up recede.'