By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- Shares of Rio Tinto PLC led U.K. stocks higher on Thursday, after the miner presented its latest cost-cutting plan, while Pennon Group PLC rose after a well-received earnings report.

The FTSE 100 index jumped 0.8% to 5,848.06, setting it on track for a third straight day of gains.

Rio Tinto (RIO) rallied 3.8%, as it said it is targeting more than $7 billion in spending cuts and savings, to try to shore up profit margins at a time of weak commodity prices and rising costs.

Chief Executive Tom Albanese said in addition that he was optimistic about the prospects for growth in China, but that the outlook for the U.S. and Europe was more downbeat.

Shares of other mining firms were also on the rise, tracking gains for most metals prices.

Kazakhmys PLC shares added 3.4%, Vedanta Resources PLC gained 3.3% and heavyweight BHP Billiton PLC (BHP) rose 1.9%.

U.K. stocks were also buoyed by comments from U.S. President Barack Obama and House Speaker John Boehner, both expressing optimism that Democrats and Republicans will agree on a deal to avert the so-called fiscal cliff.

The fiscal cliff refers to automatic spending cuts and tax hikes slated to take effect in the new year, if policy makers don't take action to avoid it.

Banking shares were among other notable gainers in the U.K.

Lloyds Banking Group PLC (LYG) added 2.1%, Standard Chartered PLC picked up 1.9% and Royal Bank of Scotland Group PLC (RBS) rose 1.5%. Sector heavyweight HSBC Holdings PLC (HBC) nudged 1.1% higher.

Shares of Pennon Group PLC gained 2.9%, as the water- and waste-management firm reported a 3.4% increase in first-half pretax profit and lifted dividends.

Bucking the positive trend in London, shares of Kingfisher PLC slipped 1%. The home-improvement firm said sales fell 3.9% in the third quarter.

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