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Xstrata lifts UK FTSE as it backs Glencore bid

* FTSE up 0.7 percent

* Xtrata rises 1.5 pct as it accepts Glencore offer

* Weak China data dents sentiment, stokes stimulus speculation

* Sell FTSE, buy defensive shares, miners - HB Markets

By Francesco Canepa

LONDON, Oct 1 (Reuters) - British blue chip shares rebounded early on Monday, with miner Xstrata

rising on heavy volume after the company finally gave its blessing to trader Glencore's

bid.

Shares in Xstrata gained 1.5 percent, having traded 22 percent of their full-day volume average by 0748 GMT, as the company's board backed Glencore's bid after wrestling for three weeks to reconcile opposing demands from shareholders over the deal terms.

"If you look at (the) ratio to the share price, there's obviously about 80 pence upside on Xstrata if the deal goes ahead," Dan Reed, a trader at HB Markets, said.

The blue chip FTSE 100 index

was up 40.57 points or 0.7 percent at 5,782.66 points, reversing Friday's losses.

HB's Reed was cautious on the broader market after data over the weekend and on Monday offered more evidence that economic growth in China, the world's largest consumer of commodities, was slowing for a seventh straight quarter.

He warned, however, that the data strengthened the case for further economic stimulus measures from Beijing, which could trigger a spike in commodity prices and mining stocks.

"The market has every reason to come lower but there is also that commodity spike that you'll have, and the (equity) market alongside that, if China does something. And I think there's every possibility."

He recommended selling the FTSE 100 as a whole and buying defensive shares, which are less reliant on economic growth, while at the same time stocking up on mining stocks such as Rio Tinto

to gain exposure to a possible rally fuelled by fresh economic stimulus from China. Defensive beverages and healthcare

stocks were among top gainers on Monday, both up 1.1 percent, while the mining sector gained 0.8 percent.

Gerard Lane, equity strategist at Shore Capital, also favoured defensive shares as he flagged growing recession risks after recent data showed the world's largest economy, the United States, is faltering.

"We would ... highlight sector performance favouring defensives in times of economic weakness," he said in a note. "The mining sector may be better supported due to hopes (as yet unrealised) about the Chinese providing more economic stimulus, but otherwise cyclicals and financials may suffer underperformance."

(Editing by Susan Fenton)

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