Banks drive FTSE to 21-month high

London - Strong gains from commodity stocks and banks drove Britain's top share index 0.2% higher to a fresh 21-month intra-day peak early on Tuesday, in the penultimate session of the first quarter.

At 07:50 GMT, the FTSE 100 index was 10.55 points higher at 5,721.21, slipping back below a new peak of 5,742.75 hit earlier, having closed 0.1% higher on Monday.

"It's the miners again providing the most strength, but with the end of the quarter and the long Easter break approaching investors are unlikely to push the market too much higher," said Mic Mills, senior trader at ETX Capital.

Commodity stocks provided the biggest boost for the blue chips as a retreating dollar lifted crude and metal prices after recent weakness.

Miners also got a boost after BHP Billiton and Brazil's Vale said they had persuaded Japanese steel mills to buy iron ore based on a quarterly pricing system as of April 1.

The move signals the demise of annual fixed-price contracts that analysts said were costing miners billions of dollars in lost revenue.

BHP Billiton shares took on 2.3%, while Xstrata, Rio Tinto, Anglo American and Antofagasta added 1.6% to 2.8% helped by a sector review from Deutsche Bank, which raised target prices.

Among oil majors, BP, BG Group, Royal Dutch Shell and Cairn Energy gained 0.1% to 0.6% as crude rose above $82.50 a barrel.

Oil services firm Amec also saw good demand, up 1.6%, as it acquired a UK consultancy, Entec for an initial £61.2m, prompting Seymour Pierce to up its rating to "outperform" from "hold".

Mobile telecoms heavyweight Vodafone also moved higher again, up 0.5% following recent press reports concerning possible dividends from its US wireless joint-venture with Verizon.

Banks were mixed but added strength as a sector thanks to gains in global heavyweight HSBC, up 0.4%, while Barclays gained 0.7%.

But part-nationalised banks Royal Bank of Scotland and Lloyds Banking Group shed 0.5% and 0.4%, respectively, unsettled by some uncertainty about what a British government might do with its stakes in the two following the impending general election.

Drug stocks were the biggest weight on the index as recent gains unravelled, with the sector's defensive attractions sidelined.

Shire was the hardest hit, down 1.3%, with GlaxoSmithKline and AstraZeneca down 0.5% and 0.4%, respectively.

Other defensive sectors such as drinks and tobaccos were also weak, with Diageo, Imperial Tobacco and British American Tobacco down 0.1% to 0.3%.

British house prices rose 0.7% in March, largely reversing the previous month's fall, the Nationwide Building Society said on Tuesday, in a sign the housing market recovery is not completely over.

February's decline, which ended a run of nine straight monthly rises, was revised to show prices falling by 0.8% instead of the 1% drop reported last month.

Investors will also watch the final reading for UK 2009 GDP data, for clues on the state of the economy.

- Reuters