RBC Capital Markets gave an upbeat assessment of the diamond market and said Petra Diamonds was its favored stock.

In a research note to clients, RBC said the strength in the diamond market continued, though at a more muted pace than in the second half of 2009.

“We expect rough price increases to be tempered somewhat in the near-term, though with De Beers and Alrosa showing restraint, we do not anticipate any major weakness to develop,” RBC said.

“Our investment stance remains to focus on producing diamond miners or those close to production, it said, adding, its “favored stock” is Petra Diamonds, which it has given an Outperform, Above Average Risk rating.

With regard to prices, RBC said: “Despite some ambiguous economic data in the past month, rough diamond demand remains relatively strong and prices rose again in February. The trend in polished diamonds was also up with respected observers suggesting the trends will continue in the near term.

“De Beers remains restrained in the total quantity of diamonds it is selling. Its February sight was around $530 million, which brings the year-to-date total to $1.1 billion, nearly three times the total for the same period in 2009. Sales are still well below the totals sold in 2008 and below all years going back to 1999, according to our records, RBC said.