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LONDON (Alliance News) - Stocks in London clung onto early gains on an "erratic" day of trading Tuesday, which saw China's central bank inject liquidity into its economy and UK retailers Next and J Sainsbury enliven their sector with news headlines.

Bellwether clothing and housewares retailer Next reported weak Christmas sales, and supermarket Sainsbury's announce a failed takeover bid for Home Retail Group.

"Continuing the completely erratic trading that has defined this Tuesday, the global markets remain on a knife edge," said Connor Campbell, financial analyst at Spreadex.

"The FTSE, somewhat against the odds, has remained the most resilient index throughout the day. Despite its weighty mining sector (normally an insurmountable obstacle for the index) the FTSE has managed to climb...this Tuesday, lifted by its rebounding commodity stocks and ignoring a clothing sector that is suffering some post-Next result/warm weathered-inspired fears ahead of the forthcoming earnings season," Campbell added.

The day started positively for the London market as the People's Bank of China moved to stabilise Chinese stock prices, which had dived on Monday, invoking a newly installed circuit breaker rule. The Chinese central bank injected CNY130 billion in its seven-day reverse repurchase operation, the biggest such injection since September.

Miners, which were the worst performers in the FTSE 100 on Monday after the Chinese stock market plunge, closed amongst the best performers Tuesday. Anglo American ended up 3.5%, Rio Tinto up 2.2% and Glencore up 2.1%.

The mining sector helped the FTSE 100 end higher after a heavy fall on Monday. London's blue-chip index closed up 0.7% at 6,137.24 points. The mid-cap FTSE 250 ended up 0.5% at 17,205.03, and the AIM All-Share down 0.2% at 734.59.

European stock indices underperformed London slightly. The CAC 40 in Paris and DAX 30 in Frankfurt both ended up 0.3%.

There was some positive news for the German economy as its unemployment declined by more than expected in December and the jobless rate held steady at the lowest level since reunification.

The number of people out of work declined again by 14,000 in December compared to an expected drop of 8,000, meaning there were 2.757 million unemployed at the end of the year. The jobless rate came in at 6.3% in December, the same as in November and matched expectations. This was the lowest since the German reunification in 1990.

There was some support for the euro against the dollar after the data, but throughout the day the dollar was dominant. At the London close, the euro traded at USD1.0725, compared to USD1.0791 at the close on Monday.

Wall Street traded lower at the London close. The Dow Jones Industrial Average was down 0.3% and the S&P 500 and Nasdaq Composite both down 0.1%.

Shares in Home Retail Group surged 34% after Sainsbury's confirmed it made an approach in November to buy the Argos and Homebase owner in a cash and shares deal, though it said the approach was rebuffed and is was now considering its position. Home Retail later confirmed that, saying it had rejected the offer because it under-valued the company and its long-term prospects.

Sainsbury but did not provide any details on the value of the bid. The supermarket chain said it is now considering its position, although there can be no certainty that it will make a formal offer.

The two companies have been working together over the past year after Sainsbury's started trialling a number of Argos concessions in its stores. It co-founded the Homebase chain back in 1979. The grocer said it believes the combination of the two groups is an "attractive proposition" for both customers and shareholders of both companies.

Hargreaves Lansdown equity analyst Keith Bowman said the move by Sainsbury's reflects the pressure on food retailers are under following the rise of discounters.

"In all, today's announcement clearly offers Sainsbury management an opportunity to test investor appetite. The combination of two retailers, neither currently highly favoured by analysts – Sainsbury (sell) and Home Retail (strong hold) – raises eyebrows, although if nothing else, now appears to leave Home Retail Group firmly in play," Bowman said.

Sainsbury's ended as the worst performer in the FTSE 100, down 5.2%.

Next followed just behind among blue-chip losers, down 4.9%. The fashion and homeware chain reported a rise in sales in the year to January 2, although growth was below the bottom end of its prior guidance, and said it expects full-year profit to remain within its previously guided range.

Next said total brand sales rose 3.7% in the year to January 2, with Next Retail up 2.1% and Next Directory up 6.1%. This was below its previously guided range of between 4% and 6% growth for total sales. In the 60 days from October 26 to December 24, total brand sales grew 0.4%, as a 2% increase in Next Directory offset a 0.5% decline in Next Retail.

The company said its performance in the fourth quarter was "disappointing" due to unusually warm weather in November and December, while Next Directory was hit by poor stock availability from October onwards.

Analysts fear Next's update may be an early indication of sluggish trading across the whole retail sector and, given Next is traditionally among the better performers, it may set the template for a slew of even weaker updates to come.

In the FTSE 250, fashion retailer SuperGroup closed down 4.0% and department store Debenhams down 1.8%.

Away from retailers, Aberdeen Asset Management was down 2.1% at the close after Barclays cut the emerging markets-focused asset manager to Underweight from Equal Weight, claiming concerns about the company go beyond a simple macroeconomic call on weak investor sentiment toward emerging markets.

Barclays said it holds concerns about equity performance, the challenging outlook for investment flows, and "poor" dividend cover.

The bank said other areas exposed to potential outflows include Aberdeen's underperforming global equities desk, high yield in fixed income, the life book of the Scottish Widows Investment Partnership business acquired from Lloyds Banking Group in April 2014, and the multi-asset area of its Solutions arm.

The pound gained some brief support against the dollar after survey data from Markit showed the UK's construction sector strengthened by more than expected in December.

The Chartered Institute of Procurement & Supply/Markit Purchasing Managers' Index rose to 57.8 in December from a seven-month low of 55.3 in November, beating forecasts of a rise to 56. A score above 50 indicates expansion.

However, despite the boost from the positive data, the dollar continued to appreciate against the pound during the remainder of the session, and at the London close, sterling was quoted at USD1.4651 compared to USD1.4670 at the close Monday. It also hit Tuesday its lowest level against the dollar since mid-April at USD1.4636.

Amid the strength of the dollar, oil prices slid back towards the USD36 a barrel mark. At the London close Brent was quoted at USD36.36 a barrel compared to USD36.90 on Monday. West Texas Intermediate was quoted at USD36.20 a barrel.

Gold was more resilient, with investors looking for a safe haven, and was quoted at USD1,078.11 at the close compared to USD1,074.80 on Monday.

In the economic calendar Wednesday, before the London open, there is the Caixin China Services PMI. Later in the morning, there are Markit services and composite PMI readings from a number of European countries. France is at 0850 GMT, Germany at 0855 GMT and the eurozone as a whole at 0900 GMT. UK services PMI is at 0930 GMT. The eurozone producer price index follows at 1000 GMT.

In the afternoon, there are US MBA mortgage applications at 1200 GMT, ADP employment for December at 1315 GMT, and trade balance at 1330 GMT. Markit services and composite PMI for the US is at 1445 GMT, before ISM non-manufacturing PMI at 1500 GMT, the same time as Factory Orders and just before Energy Information Administration crude oil stocks.

After the London close, the Federal Reserve will release the minutes from its most recent monetary policy meeting in December, at which it raised interest rates for the first time since June 2006.

In the UK corporate calendar, there are trading statements from tile retailer Topps Tiles, textile services company Johnson Service Group and engineering services company Costain Group.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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