By Alistair Smout
LONDON (Reuters) - Britain's top share index rose on Monday, extending a recent winning run, with retailers such as Tesco among the top gainers as sentiment improved on the sector following a better than expected Christmas period.
Shares in Tesco, the world's third-biggest retailer, rose 2.1 percent after Morgan Stanley raised its stance on the shares to "overweight" from "equal weight" and added them to its "best ideas" list.
Analysts at Morgan Stanley believe that the market is underestimating how far margins could improve, following a Christmas period in which sales declined less than expected.
The FTSE 350 Retail sector was up 1.3 percent, and has gained over 10 percent in the last month.
"Expectations have been so low that the sector was oversold heading into the Christmas period, anticipating dreadful numbers. While the figures weren't hugely impressive, they did suggest the decline in the sector is coming to an end," said IG market analyst David Madden.
Electronics retailer Dixons Carphone rose 3.3 percent, the top FTSE 100 gainer, with traders citing optimism ahead of the companies first ever Christmas trading update, following the merger of Dixons and Carphone Warehouse last year.
The blue-chip FTSE 100 index rose for a third straight session and was up 11.22 points or 0.2 percent at 6,561.49 points by 1127 GMT.
However, the index underperformed a 0.5 percent rise for Germany's DAX and a 0.9 percent gain on Italy's FTSE MIB, with UK shares hindered by its large exposure to commodity-related shares.
Mining shares fell before data from China, which is expected to report on Tuesday that its economic growth slowed to 7.2 percent in the fourth quarter, the weakest since the global financial crisis.
China stocks suffered their biggest one-day percentage drop since the global financial crisis on Monday, hit by record falls for banks as authorities battled market speculation that fuelled a late 2014 spurt in share prices.
"Lots of the miners listed in London have vast exposure to the Chinese market, and the clamp-down overnight on margin lending in China is triggering fears over Chinese growth," IG's Madden said.
"Any sign that China is wavering could make demand for these minerals decline, and see the FTSE continue to underperform its European counterparts."
The UK mining index fell 1.1 percent. Rio Tinto fell 1.5 percent. Exane BNP Paribas cut its target price for the stock by 5 percent to 3,450 pence.