(Update) Relief that the Spanish bank stress tests did not cover a bigger gaping hole at the heart of Europe's fourth largest economy saw markets rally on Monday morning.
The FTSE 100 ignored the latest batch of grim domestic and international economic data to advance 63 points or 1.1% to 5,805, more than making up for its lost gound on Friday.
European markets started positively too with the Euronext 100 six points or 0.9% higher at 648. Publication of the stress tests on Friday showed the country's banks would face a €59 billion (£47 billion) shortfall in the event of a serious recession, slightly less than expected.
However, new figures show Spain is in the grips of a serious recession, with its manufacturing sector shrinking for the 17th straight month in September, although the rate of decline decreased.
Overnight there was more weak data from Japan and China too to underline the global slowdown. However, as ever, weak data buoys markets with the hope of more stimulation from the central banks
So news that the UK manufacturing sector shrank more than expected, with the CIPS/Markit Purcasing Manaers' Index (PMI) falling to 48.4 in September from 49.6 in August, is bad. The index is going in the wrong direction with a further slide below 50, which separates growth from contraction.
Also worrying is another sharp decline in consumer lending which delays prospects of a recovery in the housing market. Contrary to economists' forecasts, Bank of England figures show consumer credit fell by £134 million and mortgage lending by £276 million in August with mortgage approvals broadly unchanged at 47,665 on July. However, the Bank's funding for lending scheme has yet to kick in.
James Knightley, economist at ING bank, said the figures would keep the pressure on the Bank of England's governor Mervyn King (pictured) to extend its quantitative easing or 'money printing' programme to beyond its current £375 billion level. The Bank uses this new money to buy government bonds in order to lower long-term interest rates and to encourage investors to seek out riskier assets, thus pushing up stock markets.
The prospect of more electronic 'printing' of money is not good for the pound, however. Having dipped to $1.6141 against the dollar the pound strengthened to trade 0.04% down at $1.6159 while the euro gained 0.36% to $1.2902 against the US currency. Against the pound the euro also strengthened 0.38% to 79.83p.
Gold was flat at $1,770 an ounce and Brent crude oil traded up at $112.31 a barrel.
Xstrata backs Glencore merger
Xstrata (XTA.L) led the FTSE 100 higher advancing 3% or 29p to 986.8p after the independent directors of the mining giant finally approved the takeover on revised terms by Glencore (GLEN.L), 2p higher at 345.25p.
Xstrata, a Citywire Top Stock, increased the chances of gaining shareholding approval for the deal by allowing investors a separate vote on a controversial £173 million bonus scheme to retain its top executives. .
Shire (SHP.L), up 2.5%, at £18.59, continues to benefit from Jefferies upgrade of the drugs company to 'buy' last week.
Plumbers supplier Wolseley (WOS.L) gained another 2.7% to £27.15p on reports that it will announce a big special dividend for shareholders this week.
BAE Systems (BAES.L) added 3.9p to 329p after initially dropping at news that Lagardere, a big French shareholder in EADS, objected to the conditions attached the two companies’ proposed merger.
William Hill (WMH.L) gained 4.3p or 1.3% to 320.5p after the Daily Telegraph said the betting company would increase its offer for online rival Sportingbet (SBT.L), up 0.75p or 1.5% at 52.25p, to more than £400 million.
Among smaller companies Cluff Gold (CLUF.L) firmed 0.5p to 80.5p as it changed its name to Amara Mining to relfect its focus on 'mid-tier' gold producers. The company's new ticker on the Alternative Investment Market will be AMA.