By Sara Sjolin, MarketWatch

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

The FTSE 100 index jumped 1.2% to 5,870.30, extending gains into a third straight day.

Rio Tinto (RIO) rallied 5.1%, as it said it is targeting more than $7 billion in spending cuts and savings, a move aimed at shoring up profit margins at a time of weak commodity prices and rising expenses.

Chief Executive Tom Albanese also said that he's optimistic about 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 added 6%, Vedanta Resources PLC gained 2.8% and sector heavyweight BHP Billiton PLC (BHP) rose 1.9%.

U.K. stocks were also buoyed by Wednesday comments from President Barack Obama and House Speaker John Boehner, both expressing optimism that leaders in Washington will agree on a deal to avert the so-called fiscal cliff -- hundreds of billions in automatic spending cuts and tax hikes slated to take effect in the new year, unless U.S. policy makers take action to avoid it.

Banking shares were among other notable gainers in the U.K., as heavyweight HSBC Holdings PLC (HBC) moved 1.4% higher. Shares of Lloyds Banking Group PLC (LYG) added 1.5%, Standard Chartered PLC picked up 1.6% and Royal Bank of Scotland Group PLC (RBS) rose 1.5%.

Meanwhile, shares of Pennon Group gained 4.3%, as the water- and waste-management firm reported a 3.4% increase in first-half pretax profit and lifted dividends.

Energy shares were also rising, as January crude-oil futures moved higher.

Shares of BG Group PLC rose 2%, while Royal Dutch Shell PLC (RDSB) gained 0.4% and BP PLC (BP) nudged 0.4% higher.

Bucking the positive trend in London, shares of Kingfisher PLC slipped 0.6%. The home-improvement firm said sales fell 3.9% in the third quarter.

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