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LONDON (Alliance News) - UK stocks closed higher Tuesday, shaking off early weakness to extend their recent gains, with the FTSE 100 now above the level it started the year for the first time since January 23.

The FTSE 100 and FTSE 250 both closed up for the third day in a row, while the AIM All-share index closed higher for the ninth consecutive day. The markets fell sharply in the second half of January, driven by concerns over emerging markets and the slowdown in the Federal Reserve's economic stimulus package, but have now taken back all those losses in the first half of February as sentiment has improved.

Meanwhile, the pound fell sharply against its major rivals Tuesday after official data revealed that UK inflation fell below the Bank of England's 2.0% target for the first time since 2009 in January.

The FTSE 100 closed up 0.9% at 6,796.43, the FTSE 250 closed up 0.6% at 16,342.07, with the AIM All-Share index closed up 0.2% at 880.15.

Mining giant BHP Billiton, which closed up 1.9%, was among the leading blue-chip gainers Tuesday. It reported an 83% increase in profit for the first half of fiscal 2014 as cost cutting offset a hit from lower commodity prices. It also increased its interim dividend by 3.5%, as it maintained its production guidance for the year as a whole.

John Wood Group, closing up 6.7%, was the biggestg riser in the FTSE 250. The oil services company said it performed well in 2013, with a rise in pretax profit driven by higher revenues and margins. An 11% revenue increase at its engineering division and a 8.3% revenue increase at its PSN division more than offset a 19% fall in revenues at its GTS division.

Paragon Group of Companies closed as the index's second biggest riser, up 5.1%. The consumer finance lender and buy-to-let mortgage provider has now launched its new challenger bank, making good on previous guidance that the new bank would get regulatory approval inside the second-quarter. The group said it will provide Paragon Bank with an initial GBP12.7 million in capital and will inject more over time in order to support growth.

At the other end of the spectrum, InterContinental Hotels Group closed as the biggest faller in the FTSE 100, down 4.2%, after it warned of heavy spending on refurbishing its hotels and improving It systems this year.

The group reported a pretax profit of USD600 million for 2013, up from USD547 million in 2012, as revenues rose to USD1.90 billion, from USD1.84 billion. However, its net profit fell to USD372 million, down from USD537 million in 2012, as its tax bill rose to USD226 million, from USD9 million.

Although the company said it is confident of achieving further growth, analysts are worried that the increased spending on refurbishment would close down hotel rooms and curtail any growth.

Sterling, meanwhile, slipped to a two-day low against the dollar of USD1.6651, and multi-day lows against the Swiss franc and the euro, after the inflation data.

The Office for National Statistics said the county's consumer prices inflation reading fell below the BoE's 2.0% target for the first time in over four years in January. CPI eased to 1.9%, from 2.0% in December. Economists had expected an unchanged reading.

On a monthly basis, consumer prices fell for the first time since June 2013. Prices were down 0.6%, reversing the 0.4% rise in December.

The Office for National Statistics attributed the fall to lower prices for items like DVDs and attractions entrance fees, as well as lower alcohol and tobacco prices and discounted furniture prices.

In its quarterly Inflation Report last week, the BoE estimated that inflation would stay near its 2.0% target over the coming three years. IHS Global Insight's Chief UK economist Howard Archer said Tuesday that he doubts that underlying price pressures will pick up markedly, given the amount of slack in the economy and consumers' limited purchasing power.

UFXMarkets managing director Dennis De Jong said he expects the UK to continue to benefit from below-target inflation for some time to come, adding that, "there is every chance it could drop as low as 1% by the end of this year."

At the close of the London equity markets, the pound trades at CHF1.4828 and EUR1.2135.

The currency did, however, regain some of its losses against the dollar following some much weaker-than-expected US data releases.

A report released by the Federal Reserve Bank of New York revealed that its Empire State index slipped to 4.48 in February, markedly down from a reading of 12.51 for January. While economists had expected a slowdown, consensus called for a much more mild decline to approximately 9.0.

Alongside this, the US National Association of Home Builders published a report that showed the housing market index slipped to 46.0 in February, falling well short of the consensus estimates for the index to remain unchanged at 56.0.

The data saw the dollar drop against its rivals. At the London equity market close, the euro trades at USD1.3755, the pound at USD1.6694, and the Swiss franc at USD1.1256.

In Europe, equity indices closed mixed after both the Eurozone and German ZEW surveys of current economic sentiment for January came in much worse than expected. The eurozone survey recorded 68.5, down from 73.3 in January and falling short of the expected rise to 73.9. The German number was 55.7, down from 61.7.

The CAC 40 in Paris closed down 0.1%, with the DAX 30 in Frankfurt fractionally higher

At the European equity market close, Wall Street trades higher. The DJIA is up 0.1%, the S&P 500 is up 0.2%, and the NASDAQ Composite is up 0.6%.

In the data calendar Wednesday, the Bank of England releases its latest monetary policy committee meeting minutes at 0930 GMT. The UK claimant count rate and ILO unemployment rate are released at the same time. December's construction output readings for the eurozone are scheduled for 1000 GMT.

In the US, building permits, housing starts and producer price index figures are all released at 1330 GMT. The Redbook index is published at 1355 GMT, ahead of Federal Reserve Bank of Atlanta president Dennis Lockhart's speech at 1715 GMT, and President of the Federal Reserve Bank of St. Louis James Bullard's speech at 1800 GMT.

The Federal Open Market Committee releases the minutes from its latest meeting at 1900 GMT.

In the corporate calendar, FTSE 100-listed Sports Direct International releases an interim management statement, while FTSE 250 constituent Galliford Try releases its interim results.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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