Market Report: Metals up but silver looks more than a bit tarnished

The mining sector was buoyant last night but Fresnillo fell back, ending as one the of the worst-performing blue chips of the day, after silver prices booked their worst three month run since the third quarter of 2008.

The Mexican group – the world's largest primary silver producer – lost ground, closing at 1,402p, down 13p, as spot silver prices hovered around $34.8 per ounce. Although broadly unchanged on the day, the white metal was down more than 7 per cent since the beginning of April, its first quarterly fall since the decline seen in the runup to the worst of the financial crisis in 2008.

But the remainder of the heavily weighted sector fared well, as industrial metals prices enjoyed a steady session in response to growing confidence that Greece could avoid a full-blown debt default.

The cheer among investors was down the successful passage of a second austerity Bill though the Greek parliament, with lawmakers clearing the way for the EU and IMF to release urgently needed funds. Anglo American was among the standout risers, climbing by 72.5p to 3,087.5p, while Kazakhmys gained 30p to 1,380p.

Lonmin also managed to gain ground, adding 18p to end the day at 1,453p, despite Credit Suisse warning investors that the platinum miner faced labour issues in South Africa. "Labour issues are likely to be a big theme in the second of 2011 for the PGM [platinum group metals] sector in South Africa," the broker said, citing issues such as wage inflation and potential strike action.

"There is currently a very wide spread between [the] union wage increase demands and what the miners believe fair. The National Union of Mineworkers are demanding 14 to 20 per cent wage inflation, with the miners offering mid-single digits. Lonmin is due to settle later his year, a quarter after the other PGM names."

Overall, the news from Greece was potent enough to drive the FTSE 100 to 5,945.71, up 1.5 per cent or 89.76 points. The mid-cap FTSE 250 index was lifted by similar factors, rising by 1.1 per cent or 134.89 points to 11,934.04.

Last night's gain ensured that the blue-chip index ended the quarter on a somewhat positive note, up around half a per cent over the past three months. The mid-caps booked a better performance, up around two and a half per cent over the second quarter.

Sticking with the commodities theme, but looking beyond the mining sector, the oil and gas group BG was in good form, rising by 64p to 1,414p after double its estimate of reserves in Brazil's Santos basin. The revision kicked off speculation that the group may seek to sell a stake in the fields to unlock some value.

"This resource base is too much for BG to develop in a timely manner given the size of its staff pool," Bernstein analyst Oswald Clint said. "Hence, we now firmly believe that BG will utilise the healthy asset market at some point in the near term to realise the value of some of these assets."

Though strong, BG's performance paled in comparison to Lloyds, which ended as the strongest of the blue chips. The stock enjoyed a stellar session, climbing by nearly 10 per cent or 4.345p at 49p after the new chief executive Antonio Horta-Osorio outlined a plan to cut costs and strengthened the part-nationalised lender.

Joseph Dickerson, the banks analyst at Espirito Santo, welcomed the result of the bank's annual review. "We would characterise the review and targets as 'realistic', particularly relative to current expectations and thus supportive to the share price," he said, repeating his "buy" recommendation.

Over on the second tier, Charter International shares continued to rise, gaining 5p to close at 792p, despite the troubled tool and equipment maker turning down the recent £1.3bn approach from the industrial buyout vehicle Melrose, which was also 5p ahead at 362p last night. While Charter stood firm, Premier Foods buckled under, shedding an eye watering 22.3 per cent or 5.46p to close at 19.02p, its lowest close this year.

The bruising sell-off was brought on by a grim trading update, with the food producer saying that it expected its first half profits to fall by at least 25 per cent owing to the impact of factors such as high input costs and unhelpful trading conditions.

The housing sector recorded some strong gains last night, with the bulls driving out the bears after Taylor Wimpey issued a positive trading statement.

The house-builder pointed to continued stability in the housing market, luring investors who drove its stock up by 1.25p to 37.78p. Peers soon followed suit, with Barratt Developments rising by 1.9p to 114.2p, Persimmon adding 7.4p to 482.3p and Bellway climbing by 8p to 715p.

Bovis Homes was also higher last night, climbing by nearly 3 per cent or 12.8p to end the session at 442p, but sector peer Berkeley was less successful and failed to close in the black, easing by 7p to 1,288p.