LONDON, Jan 4: UK stocks rose for a second straight session on Wednesday, inspired by a bullish outlook from fashion chain Next and hopes of takeover activity in the insurance sector, although the market trimmed its initial gains as an earthquake was reported off the coast of Mexico.

News of the magnitude 7 quake initially led to fears of widespread destruction. There were no immediate reports of damage, however, and traders said the earthquake was used as a reason for investors to sell stocks after a good run.

These markets are very heavily overbought currently and the market is looking for an excuse to take profits so from that viewpoint anything that looks as if it could rattle the market is having an effect, one trader said.

The FTSE 100 was up 21.7 points at 5,703.2 — off an initial peak of 5,716.4 points, which was the blue-chip index’s highest level in 4-1/2 years. Drug stocks, life insurers and miners such as BHP Billiton were the strongest sector performers.

Mining stocks are discounting a 22 per cent fall in industrial commodity prices. This is not going to happen if industrial production accelerates and China growth stays around 10 per cent,” said strategists at investment bank CSFB.

Clothing retailer Next surprised investors with its upbeat trading statement, which revealed strong sales over the key Christmas period and predicted better-than-expected profits. The shares jumped 7.2 per cent and touched a peak of 1,651 pence, their highest level since March 2005.

The upbeat outlook invigorated other retailers. DSG International, the owner of the Dixons chain, rose 1.4 per cent. Mid-cap furniture retailer MFI added 3.7 per cent.

Insurers were also in demand as speculation that US firm Prudential Financial could be mulling a bid for Britain’s Prudential swirled around the market.

All the insurers are in vogue at the moment because everyone expects there to be some consolidation this year, one trader said.

Prudential’s shares gained 2 per cent, while Legal & General and Aviva added 1.8 per cent each.

Still in the financial sector, mortgage lender HBOS lost 1.9 per cent after Goldman cut its rating on the stock. Asian-focused bank Standard Chartered got a boost, however, as CSFB named it as one of the banks to buy in 2006. ENDS

Industrial gases group BOC and general retailer GUS fell as the shares traded ex-dividend, meaning investors no longer qualify for the latest dividend payout. —Reuters