By Atul Prakash and Alistair Smout
LONDON (Reuters) - Mining stocks helped Britain's top share index rebound on Monday, benefiting from stimulus measures in China to support stuttering growth in the world's biggest consumer of metals.
The FTSE 350 mining index (FTNMX1770) rose 1.7 percent, the top sectoral gainer, after China cut the amount of cash that banks must hold as reserves to help combat a slowdown in growth in the world's second-biggest economy.
The blue-chip FTSE 100 index (FTSE) rose 0.75 percent to 7,046.81 points by 1125 GMT, partly recovering after a 1.3 percent drop on Friday. While it climbed back above the psychologically significant 7,000 level, it remained about 1 percent off a record high touched in the previous session.
"Mining stocks are sensitive to macro developments in China and the policy easing that we have seen come through should help the sector, given that the country is trying to stimulate demand," said Robert Parkes, equity strategist at HSBC (LONDON:HSBA).
"We are positive on this ‘deeply unloved' sector as valuations are quite attractive and we believe that large international funds still have got pretty significant underweight position on miners."
Miners BHP Billiton (L:BLT), Rio Tinto (L:RIO), Antofagasta (L:ANTO) and Anglo American (L:AAL) rose 1.3 to 3.3 percent.
Following Friday's fall, gains were broad-based, with other growth-sensitive sectors like banks (FTNMX8350) and oil and gas (FTNMX0530) rising 1.2 percent and 0.8 percent respectively.
However, the FTSE 100 lags some major European indexes including Germany's DAX (GDAXI) and France's CAC (FCHI) -- both up more than 20 percent this year against a 7 percent rise for the British index -- with political uncertainty before Britain's national election on May 7 a factor.
Opinion polls put the governing Conservatives neck-and-neck with the opposition Labour party, and the Scottish National Party may emerge as the third-biggest, raising prospects of a hung parliament. The ruling party has promised a referendum on Britain's membership of the European Union by the end of 2017.
"A minority government will heighten uncertainty over how successful the government will be in pursuing its policy agenda and how long the next parliament will last. This will lead to higher risk premium for UK assets and an uncomfortable increase in volatility," Bill O'Neill, head of the UK investment office at UBS Wealth Management, said in a note.
"In order of importance: a referendum on EU membership, fiscal policy and devolution will be the key concerns for the markets."
Among other sharp individual movers, InterContinental Hotels Group (L:IHG) rose 2.1 percent, with traders citing merger chatter after speculation of a possible deal broke in late trade on Friday.