MARKETS fought back in the wake of steep falls on Wall Street overnight as positive updates on UK inflation and better-than-expected eurozone industrial production data helped lift traders' moods after a glum start.

The FTSE 100 Index was initially in the red after New York stocks plunged.

The blue-chip index closed up 9.7 points at 6766.9 in the wake of official figures showing UK inflation had fallen to the Bank of England's 2% target for the first time in more than four years.

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It bolstered the chances of a prolonged period of low interest rates, firming up the appetite for equities while also opening up the prospect of earnings growth overtaking the rise in the cost of living - and boosting hopes for consumer spending.

The optimism even spread to currency markets as the pound climbed a cent against the greenback to 1.65 US dollars. Sterling was flat against the single currency at 1.20 euros.

Meanwhile Germany's Dax and France's Cac 40 climbed in the wake of encouraging economic data from the continent.

Among stocks in London, broker upgrades helped BSkyB and financial services group Hargreaves Lansdown make gains and limit falls on the wider market.

BSkyB improved nearly 4% or 31.5p to 871p after broker UBS placed a buy rating on the communications business.

Hargreaves climbed 23p to 1508p as Morgan Stanley said the firm was in a sweet spot for growth after last year's financial services industry shake-up.

Supermarkets were in focus once more after Christmas data from Kantar Worldpanel confirmed the winners and losers. Sainsbury's lifted nearly 3% or 9.3p to 360.5p after the figures showed it held market share at 17.1% in the 12 weeks to January 5 against falls among its big four rivals. Morrisons, which saw its share drop to 11.5% from 12%, fell 1.5p to 249.8p.

Elsewhere, menswear specialist Moss Bros saw shares race 22% ahead after it said full-year profits were set to beat market expectations thanks to a sales surge over Christmas.

Like-for-like sales rose 12.9% in the five weeks to January 11.

Furthermore, the group also announced a bumper final dividend payout to shareholders as part of plans to accelerate its dividend policy to hand more cash back to investors, sending shares up 16.2p to 90.5p.

Online fashion firm ASOS reported a 38% hike in sales in the four months to December 31 but with trading in line with market expectations, shares fell back after their recent strong run - down 3% or 210p to 6650p.

The biggest FTSE 100 risers were BSkyB, up 31.5p to 871p, Shire up 80p to 2991p, Sainsbury's up 9.3p to 360.5p and Astrazeneca up 92p to 3755.5p.

The biggest FTSE 100 fallers were Amec down 38p to 1067p, Intertek down 76p to 2993p, Tullow Oil down 21.5p to 856.5p and William Hill down 8.7p to 372p.