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FTSE 100 index edges higher, miners recover

By Atul Prakash

LONDON (Reuters) - Britain's top share index edged higher on Thursday, with a rise in metals prices on improving seasonal demand from China, the world's biggest consumer of industrial metals, helping mining stocks.

The UK mining index rose 0.6 percent, the best sectoral performer, after copper and zinc rose more than 1 percent on signs of strengthening confidence in the Chinese economy.

The blue-chip FTSE 100 index closed 14.06 points, or 0.1 percent, higher at 6,565.59 points after falling to a low of 6,535.78 earlier in the session. The index is up more than 11 percent so far this year.

Analysts said the index had potential to perform well this year as equities had become attractive compared to other asset classes because of an improvement in the economic outlook.

"We're seeing flows out of bonds and bank accounts pay negligible interest at best, so where else can the market put money to work other than stocks," Mike Jarman, chief market strategist at H2O Markets, said.

"Equities have good momentum for the year, barring a government shutdown in the US, there's very little that will cause the market to capitulate so long as macro data doesn't deteriorate."

Jarman said he would buy sectors that had underperformed as portfolios would begin to chase returns going into the final quarter of the year. Sectors such as mining had the potential to outperform as China begins to refocus its efforts on making their economy more domestic consumption based.

However, the broader stock market's gains were capped by a fall in some utility companies, which came under further pressure following a pledge by the country's main opposition party to freeze energy and gas prices if elected in 2015.

Utilities Centrica and SSE extended their losses after opposition Labour leader Ed Miliband revealed his plan earlier this week to freeze energy prices until 2017 to help consumers hit by rising prices.

Centrica fell 2.3 percent, the biggest decliner on the FTSE 100 and after dropping 5.3 percent a day earlier, with JP Morgan cutting its stance on the stock to "neutral" from "overweight". SSE fell 1.9 percent after slipping 5.8 percent on Wednesday.

"The Labour announcement is negative for the profitability of these companies. Yesterday may have been a case of fast money coming out and today may be long-onlys exiting from potentially a medium-term problematic sector, given the uncertainty that has been created," Macquarie strategist Daniel McCormack said.

European markets have been facing resistance in regaining their recent multi-year highs since Federal Reserve Chairman Ben Bernanke surprised the market by not trimming stimulus last week and left investors guessing about the timing of such a move.

Investors avoided strong bets following ongoing political wrangling in the United States to pass a spending bill to keep the government funded beyond October 1. U.S. lawmakers must also raise the federal borrowing limit by October 17 to avoid a debt default by the United States.

(Editing by Christina Fincher)