London lifted by hopes of end to US rate rises

London's index of leading shares closed up 45.4 points at 5974.9 points yesterday, its highest close since early May, as Wall Street streaked upwards on hopes that recent US interest rate rises are coming to an end.

At the close in London, the Dow Jones Industrial Average was up more than 120 points, following the release of second-quarter GDP figures which showed US growth slowing to an annual 2.5% from 5.6% in the first quarter, well below what analysts had expected. The data fuelled hopes that the stream of interest rate rises introduced by the Fed is about to come to a halt.

Trading volumes in London were light, though BSkyB and Xstrata were two bright spots. Prudential, meanwhile, dipped after reporting a mixed bag of half-year results.

Satellite broadcaster BSkyB rose 14p to 564p after reporting annual results in line with forecasts, with profits up 1% to just shy of £800m. Xstrata, the mining group, raced to the top of the FTSE 100 leaderboard, up 160p at £23.01, as the Canadian miner Inco dropped its bid for rival Falconbridge, which Xstrata is also looking to buy.

Among other mining stocks, Anglo American added 39p to £22.60 despite news from DeBeers, the world's largest diamond company, in which Anglo has a 45% stake, that first-half sales were only slightly ahead of last year and it is unlikely to do as well in the second half as last time. Traders seem to be betting that two other key Anglo group companies will do better than expected.

Prudential was one of the day's biggest losers, down 18p at 577.5p. Although the insurer's half-year results were in line with the City's expectations, its online bank, Egg, did worse than expected with a £39m loss, compared with a profit of £13m last year. Figures from its core UK business also looked weak.

Drugs group Shire Pharmaceuticals added just 2p to 840p as better than expected second-quarter results were tempered by investor disappointment that the company did not announce a much-rumoured settlement of its patent dispute with US rival Barr Pharmaceuticals.

Barr is one of several producers of generic drugs that Shire has taken to court alleging that they have breached its patents for hyperactivity drug Adderall, its biggest revenue generator. The two sides have been trying to thrash out a settlement out of court for some time. Speculation had been growing that they were close to an agreement which would give some protection to Shire's revenues and allow it to focus on developing new drugs.

The day's biggest loser among the blue chips was InterContinental Hotels, down 41.5p at 858.5p as traders reacted to negative noises overnight from US rival Starwood which predicted soft trading in the second half of the year. Cruise company Carnival, meanwhile, added 20p to £21.59 after strong results from its American rival Royal Caribbean.

Among the second-line stocks, the FTSE 250 added 7.5 points to 9,369.5. Shares in satellite company Inmarsat were the biggest loser in the FTSE 250 as Morgan Stanley trimmed its price target for the stock by 20p to 350p following recent negative comments from companies that actually use its satellite network to provide services.

Telenor Satellite and Stratos, which use Inmarsat's satellites to run voice and data services, account for a large slice of Inmarsat's revenues and both have recently said they are experiencing lower traffic, while customers are also switching to lower-margin products. Inmarsat closed down 16.75p at 313.25p.

Britvic was again the subject of bid speculation, with the soft drinks maker rising 2.5p to 210.75p on talk of private equity interest. The rumour has been doing the rounds but was spiced up yesterday by talk of an offer at 250p a share.

Filtronic eased 1.5p to 177.5p ahead of the company's annual results on Monday. Analysts are forecasting a loss for the wireless technology specialist, plus an update on the proposed $150m (£81m) sale of its wireless infrastructure business to US-based Powerwave.

On Aim, TEG Environmental proved the adage that where there's muck there's brass, adding 2p to 67.5p after announcing a pilot project with Shell's UK business that will see the environmental technology firm convert toxic mud into harmless compost.

One of the many side effects of drilling for oil is the amount of contaminated mud produced. In the laboratory TEG has successfully converted this into compost and now in a pilot project with Shell will see if it can work on an industrial scale. It could provide a lucrative new business area for TEG, traders reckon.

Carpathian Resources, the oil and gas producer and explorer focused on central Europe, eased 0.25p to 2.875p despite a quarterly update in which the firm said that production from Ja3a, its primary well, has been in line with forecasts and this is expected to continue.

Mining minnow Cluff Gold rose 19p to £10.63 after it said tests from its Baomahun prospect in Sierra Leone had produced a "phenomenal exploration result". The company, chaired by Algy Cluff, former proprietor of news magazine the Spectator, said it was confident Baomahun was "showing all the indicators of a potentially major gold deposit".

PlusNet negatives

The doom and gloom surrounding PlusNet, the internet service provider that has seen its shares plummet since April as traders have fretted about its competitive position, continued yesterday. Investec Securities has looked ahead to the group's results next week - in a note entitled "wolves at the door" - and started coverage on the stock with a reduce stance. PlusNet, which makes about 86% of revenues from broadband, is highly sensitive to changes in pricing and with recent "free" offers from Carphone Warehouse, Sky and Orange the company is under pressure. In its note, Investec said the shares, which have plunged from over 400p in March, are likely to continue to underperform. The stock closed down 6p at 121.5p.