FTSE: 5,896.87 (+26.79) Mid-250: 11,574.53 (+83.78) Small Cap: 3,240.15 (+1.80)LONDON EQUITIES bounced back yesterday, after the previous session's sharp losses looked to have run too far, too fast as traders continued to absorb S&P's cut to its outlook on US sovereign debt.

The FTSE 100 regained 27 points to 5,896.87, a recovery of 0.5 per cent, after its sharpest daily loss since November took 125 points off the index on Monday.

The make-up of the recovery featured the market’s riskier stocks – miners, oil majors and banks – in a sign that investors were coming to terms with the shock at the rating agency’s move, and assessing whether it really offered much new thinking on the implications of Washington’s strained fiscal position.

Ben Potter, market strategist at IG Index, said S&P’s move had “caused some panic and fear through markets as everyone pondered the possibility, albeit tiny, of a credit downgrade of US debt.

“If it actually occurred, the ramifications would be huge and felt globally. [But] it almost certainly won’t occur. Rather, it is a wake-up call for the US to get its fiscal budget in order and to come up with some steadfast plans to actually reduce its budget deficit,” he said.

As the sense of shock eased, investors moved in to buy up bargains. Fresnillo, a Mexican silver miner, was the sector’s biggest single gainer, up 3 per cent at £15.59. Lonmin was 1.8 per cent higher at £16.04 and Vedanta Resources gained 1.5 per cent to £22.66.

Shares in Tesco came under pressure after the retailer’s new chief executive, Phil Clarke, said it needed to improve performance in its home market as it reported annual results.

The UK’s biggest retailer by market share and market value also reported an annual loss from its US operations of £186 million.

It was a mixed session overall for retailers. The best single gain on the index came from upscale fashion house Burberry after it said fourth-quarter sales would beat forecasts and sent annual profits to the top of forecast ranges. It said revenue in the three months to the end of March reached £390 million. Its shares rose 6 per cent to £12.14.

Heritage Oil fell 4.7 per cent to 239.9p on news of a widening annual loss of $44.2 million, up from $36.8 million a year ago. London’s mid cap index added 84 points to 11,574.53. – (Copyright The Financial Times Limited 2011)