U.K. Stocks Climb, Led by Commodity Producers; BP, Vedanta Rise

By Sarah Jones

July 29 (Bloomberg) -- U.K. stocks climbed after a rally in commodity producers offset concerns banks will be forced to liquidate credit assets.

BP Plc, Europe's second-largest oil producer, and Vedanta Resources Plc gained after the companies reported higher earnings. British Airways Plc rallied after the airline said it was in merger discussions with Iberia Lineas Aereas de Espana SA.

Barclays Plc led a retreat by banks, falling the most in fourth months, after Merrill Lynch & Co.'s liquidation of credit assets sparked concern other lenders may have similar risks.

The benchmark FTSE 100 Index added 20.6, or 0.4 percent, to 5,333.1 at 1:53 p.m. in London, even as almost two stocks fell for every one that rose. The FTSE All-Share Index increased 0.3 percent while Ireland's ISEQ Index fell 1.8 percent.

BP added 1.2 percent to 525.75 pence after the company said second-quarter earnings rose 28 percent to $9.47 billion as crude surged to a record. Excluding inventory changes and one-time items, earnings beat analysts' estimates. The shares

``The defensive nature of this cash generating machine gives investors hope for the future,'' said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers. ``These are another set of exceptionally strong numbers.''

Royal Dutch Shell Plc, Europe's biggest oil producer, added 1.3 percent to 1,856 pence. Cairn Energy Plc, a U.K. explorer, advanced 4.1 percent to 2,799 pence.

Cairn India Ltd., the Indian unit of Cairn Energy, reported a second-quarter profit of 1.39 billion rupees ($33 million) and said revenue rose 66 percent.

Vedanta Rallies

Vedanta Resources rallied 5 percent to 1,944 pence after India's largest zinc and copper producer said first-quarter profit rose 6.3 percent on record iron ore output. The company also said charges levied by smelters to process metal will be a third lower than previously estimated because of a shortage of raw material from mining companies.

Antofagasta Plc, owner of copper mines in Chile, added 4.7 percent to 565.5 pence. Kazakhmys Plc, Kazakhstan's biggest copper producer, added 3.3 percent to 1,408 pence.

British Airways Plc jumped 3.6 percent to 243 pence after Europe's third-largest carrier said it's holding talks with Spain's Iberia to lower expenses as slower economies and higher fuel costs wipe out earnings.

Barclays, the U.K.'s third-biggest bank which has written down $6.5 billion of credit assets in the past year, lost 7.3 percent to 314 pence. Royal Bank of Scotland Group Plc, Britain's second-largest bank, declined 4.6 percent to 196.7 pence.

``Fears of further writedowns in the financial sector'' have resurged, said Paul Webb, chief dealer at CMC Markets in London. ``The fact that many had been starting to convince themselves that the worst of this was behind us is clearly foolhardy.''

The FTSE 350 Bank Index dropped 3.1 percent to a two-week low after Merrill Lynch, the third-biggest U.S. securities firm, said it will book more writedowns and sell $8.5 billion of stock and liquidate $30.6 billion of bonds at a fifth of their face value to shore up credit ratings.

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

Inchcape Plc (INCH LN) dropped 36 pence, or 12 percent, to 259.75. The global operator of car dealerships fell the most in more than eight years after saying 2008 earnings will be flat as a consumer spending slowdown hits European car sales. Pendragon Plc (PDG LN), Britain's biggest car dealership chain, dropped 17 percent to 9.1 pence.

St James's Place Plc (STJ LN) lost 7.5 pence, or 3.5 percent, 202 after the financial adviser said ``challenging market conditions'' had trimmed first-half profit. The company reported net income dropped 22 percent to 22.2 million pounds.

Wolfson Microelectronics Plc (WLF LN) tumbled 12 pence, or 9.8 percent, to 110 after the maker of semiconductors used to power mobile phones said second-quarter profit fell to $4.34 million because of acquisition-related costs.

Woolworths Group Plc (WLW LN) plunged 96 cents, or 15 percent, to 5.53. The retailer which sells goods from appliances to candy said group sales in the 25 weeks to July 26 declined 3.1 percent. Revenue at stores open for at least a year dropped 6.7 percent in the last six weeks.

There was ``a marked worsening of conditions in June and July in an increasingly competitive market,'' Richard North, Chairman of Woolworths, said in the statement.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.