Market report: Friday close

CHINA'S booming economy is driving up the price of commodities as mining companies around the world work flat out to keep up with demand from Asia's powerhouse.

Broker UBS is forecasting that prices of metals and minerals will soar by about 25% this year, lifting profits of the biggest miners.

Spot commodity prices are said to be 'rampant' and bulk commodity prices for annual settlement have been better than expected. Miners can also draw comfort from a weaker dollar and the prospect of re-stocking due to rising prices.

UBS says earnings estimates are expected to increase as commodity prices continue to climb, based on strong fundamentals such as heavy demand and limited new supplies.

As a result, it has upgraded the sector and highlighted companies such as Anglo American, up 25p at 1229p, and Xstrata, 18p better at 681p. It has upgraded AA - which in recent months has underperformed peers such as Rio Tinto, 1p dearer at 1445p, and BHP Billiton, 2 3/4p higher at 465 1/4p - from neutral to buy and raised its 12-month target from 1275p to 1450p.

Xstrata has also been lifted from neutral to buy and its target raised from 600p to 785p. US securities house Goldman Sachs says higher metal prices are likely to lead to a series of takeovers.

The rest of the market drifted lower despite an opening rally on Wall Street this afternoon. The FTSE 100 index closed down 16 points at 4460.8.

Logistics specialist Exel rose 3 1/2p to 770p after bullish comments from several big brokers. Morgan Stanley has upgraded from equal weight to overweight and lifted its target from 777p to 875p, claiming Exel will continue to deliver highquality, stable growth. Credit Suisse First Boston continues to rate Exel outperform and has hoisted its target from 772p to 848p.

Shareholders in under-fire BAE Systems did their best to support the defence contractor after it drew stinging criticism from the National Audit Office over a £3.1bn overspend by the Ministry of Defence.

BAE has lost out to Airbus on a £13bn aircraft refuelling contract, and the shares added 1/2p to 170p. It was part of a consortium with Rolls-Royce, 1p better at 178 1/2p, and Cobham, up 9p at 1160p. Serco, part of the BAE bid team, fell 4 1/4p to 185p.

United Business Media fell 7p to 543p after reporting a 15% drop in advertising volumes last month. Broker Merrill Lynch insists UBM is still a buy and is reassuring investors that the trade-journal advertising market is still showing tentative signs of recovery.

Fresh from Cairn Energy's huge oil discovery in India earlier this week, the City's independent oil sector got another lift as Regal Petroleum, up 60p, or 44%, to 195 1/2p, said its Greek joint venture, Kavala, had struck a field of up to 227m barrels of oil equivalent in the Aegean Sea. Broker Evolution Beeson Gregory says next stop 300p. Cairn rose 47p to 632p.

MFI Furniture rose 3/4p to 144 3/4p as several large lines of stock went through on the ticker. They included 15m shares at 143p and a further 6m at the same price. UBS did the business.

Finsbury Foods, the cakemaker chaired by Lord Saatchi, fell 10 1/2p, or 22%, to 37 1/2p as it confessed major staff shortages over Christmas had hit margins badly.

The 600p-a-share agreed bid for CD Bramall, up 1p at 605p, from Pendragon, ahead 44 1/4p at 255 1/2p, drove up Lookers by 17p to 296 1/2p, and HR Owen by 4p to 186 1/2p.