Better-than-expected Chinese growth data and good UK employment figures saw the FTSE 100 rise and the pound rally, offsetting nervousness over the crisis in Ukraine where government forces clashed with pro-Russian separatists in the east of the country.
European markets advanced with the FTSE 100 gaining 31 points or 0.5% to 6,752 after Chinese figures showed the world's second largest economy grew by 7.4% in the first quarter of 2014. Although this is China's slowest pace of growth in 18 months it is slightly higher than the 7.3% forecast by analysts and provided some reassurance that China's slowdown was occurring in a measured way.
Nevertheless, Craig Botham, emerging markets economist at Schroders, argued that after the weak manufacturing data and money supply figures earlier this month it was 'difficult to feel positive about Chinese growth' particularly as the government had ruled out fresh stimulus for the economy. 'Headwinds will continue to slow China's dash for growth over the rest of the year,' he said.
Meanwhile, sterling spiked to $1.6786 against the dollar after Britain's unemployment rate fell faster than expected to a five-year low of 6.9% in the three months to February. This was down from 7.2% in the three months to January, strengthening expectations of an early interest rate rise by the Bank of England.
The brightening economic picture appeared to be confirmed by the Office for National Statistics which said total pay growth rose 1.7% in the same period, the first time in four years that earnings have not lagged inflation.
Jobs data 'deceptive'
However, Marc Ostwald, strategist at Monument Securities, cautioned that the detail below the headline figures was less impressive and might stay the Bank's hand in raising rates too soon. For example, the 239,000 leap in employment trounced a forecast rise of 90,000 rbut was 'deceptive', he said, as it included a 74,000 rise in part-time jobs and a 146,000 increase in the numbers of self employed. 'It certainly underscores the point that the improvement in the labour market is as patchy and imbalanced as the growth picture.'
Similarly on pay, Ostwald said excluding bonuses average earnings rose by a much weaker annual rate of 1.4%, which was still below inflation. He concluded: 'Initial market reaction looks to be very much focused on that headline unemployment rate fall, but the MPC [monetary policy committee] will be looking far more closely at the breakdown, and the above mentioned details offer no justification to shift to a more hawkish rate trajectory.'
Sports Direct leads FTSE higher
Shares in Sports Direct (SPD) soared 5.9% to 789p after Bank of America Merrill Lynch issued a bullish note on the retailer founded by Mike Ashley, the owner of Newcastle United, saying it could grow revenues by 7% a year for the next decade and sustain 20% long-term growth in earnings per share. Key to this, they said, was last year's acquisition of the Sports Ebyl chain in Austria which BoAML thinks could be the platform for European expansion at a time when the company faces little competition in the UK.
Tesco (TSCO) bounced back 2% to 292p after falling to a six-year low earlier this week as chief executive Philip Clarke vowed to stay in the job and fend off a pincer movement from upmarket rivals such as Waitrose and discounters such as Aldi and Lidl which cut annual profits by 6% to £3.3 billion. It held the dividend at 14.76p per a share.
Retail analysts at Jefferies reiterated their 'buy' rating, saying that while Tesco's core UK business remained challenging, its international operations, which account for around a third of the business, had turned round in the second half of the year.
Hargreaves Lansdown (HRGV) shed 2% to £11.86 despite the stockbroker revealing it had received record inflows of £1.83 billion in the first three months of the year, with total assets under its administration rising £2.3 billion to £45.7 billion.