HSBC, Diageo drive gains in London's FTSE 100

By Shashank Nayar and Susan Mathew

(Reuters) - A surge in HSBC after its largest shareholder boosted its stake and an upbeat outlook from spirits maker Diageo, combined with strong economic data from China, lifted London's FTSE 100 index on Monday.

The blue-chip index <.FTSE> closed up 1.5% as Asia-focussed lender HSBC Holdings <HSBA.L> jumped 8.9% after Chinese insurance group Ping An <601318.SS> <2318.HK> boosted its stake to 8%.

Britain's banking index <.FTNMX8350> surged 8.2% for its biggest one-day gain in over a decade.

Beverage makers <.FTNMX3530> jumped 5.6% to mark their best day in six months after Diageo <DGE.L> said its outlook for the first half was improving.

Broader sentiment was upbeat after data showed profits at China's industrial firms grew for the fourth straight month in August, keeping hopes for an economic recovery alive.

"We remain in a buy on dip mode, but do not believe we have yet reached the bottom," said Sebastian Galy, a senior macro strategist at Nordea Asset Management, attributing the day's moves to month-end buying.

Despite the jump, the index is still down on levels seen at the end of August.

Expectations of fresh lockdown measures in the wake of rising COVID-19 cases, uncertainty about a swift economic recovery and the risk of Brexit without a trade deal have led investors to largely shun British stocks as they continue to underperform developed markets peers.

"In a period of consolidation, the tendency is to be focused on the short-term which is worrying," Galy said. "(U.S. jobs data) are also likely to show a significant slowdown in economic activity. Such fluctuations ... do suggest we have not finished this consolidation in equities."

The mid-cap FTSE 250 index <.FTMC> climbed 1.9%, although an 11.6% decline in bookmaker William Hill <WMH.L> kept a lid on gains. A takeover offer for the company from U.S. casino operator Caesars <CZR.O> was far below market expectations.

After a rise of up to 0.8% following the China data, mining giants <.FTNMX1770> closed down 0.7%.

(Reporting by Shashank Nayar in Bengaluru; Editing by Subhranshu Sahu)