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London close: Stocks rise despite lack of drivers

LONDON (ShareCast) - (ShareCast News) - The FTSE rallied on Wednesday, bouncing back from the previous day's falls, despite a batch of weak manufacturing data. Caixin's purchasing managers' index on Chinese factory activity fell to 47 in September from 47.3 in August, below the 50 level that separates contraction from expansion. It (Other OTC: ITGL - news) missed analysts' estimates for a reading of 47.5.

"Ironically, gains are despite disappointing Chinese Manufacturing PMI data overnight which only adds to pre-existing concerns about the world's No.2 economy, but suggests markets becoming increasingly accustomed to China data confirming a slower pace of economic growth," said Michael van Dulken, head of research at Accendo Markets.

On a positive note for China, Citi expects policies put in place by the country's central bank would boost the economy by year end with a positive impact on energy, industrial commodities and bulks, with the exception of iron one.

However, "the likelihood and severity of a hard landing in China remains highly uncertain for now and would pose a significant risk to the global economy," the Commodities Strategy team led by Edward L.Morse said in a research report sent to clients.

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In the Eurozone, Markit (NasdaqGS: MRKT - news) 's manufacturing purchasing managers' index fell to 52 in September from 52.3 in August, as expected. Services PMI dropped to 54 this month from 54.4 in August, compared to forecasts of 54.2. The Composite PMI, which combines manufacturing and services activity, fell to 53.9 in September from 54.3 the prior month, below estimates of 54.

Elsewhere in the bloc, European Central Bank president Mario Draghi said the quantitative easing programme may be extended if inflation weakens more than currently expected.

"Should some of the downward risks weaken the inflation outlook over the medium term more fundamentally than we project at present, we would not hesitate to act," Draghi said in testimony to European parliament in Brussels.

Stateside, Markit flash US Manufacturing PMI in September was unchanged from August's 22-month low of 53.0 and in line with expectations, marking one of the slowest rates of expansion in the sector for the last two years.

The Mortgage Bankers Association said its seasonally adjusted index of application activity, which covers home purchase demand and refinancing demand, surged 13.9% in the week ended 18 September.

Meanwhile, Lloyds Bank economists said they expect sterling will drop sharply versus the single currency - which is seriously undervalued - next year. The economists said the pound faces downside risks including Britain's current account deficit, uncertainty surrounding the EU referendum and more acute fiscal austerity. The pound was trading 0.82% lower against the dollar at $1.5239.

On the corporate front, airline stocks were flying higher after Morgan Stanley (Xetra: 885836 - news) raised its target price on International Consolidated Airlines and Easyjet (Other OTC: EJTTF - news) . Morgan Stanley said IAG "moves to our top 'overweight' pick in the sector" and raised the target price to 1000p from 915p.

The broker raised Easjet's target price to 1,980p from 1,910p and retained its 'overweight' rating.

Glencore (Xetra: A1JAGV - news) moved higher after Tuesday's selloff, after Investec (LSE: INVP.L - news) recommended traders to hold instead of sell.

Smiths Group (Other OTC: SMGKF - news) jumped as the engineering group posted a 3% rise in full-year pre-tax profit and CEO Phil Bowman handed over his role to Andrew Reynolds Smith.

United Utilities Group climbed despite saying that revenue in the six months to 30 September is likely to remain flat and profit is expected to drop.

BBA Aviation (LSE: BBA.L - news) slumped after the aerospace support and aftermarket services provider announced the acquisition of US rival Landmark Aviation.

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