Stephen Pope Comments: Weak Banks And Commods Weigh On Britain's FTSE

July 14, 2010, Reuters

Britain's top share index fell on Wednesday, after six days of gains, with banks hit by fresh stress test concerns, and miners reversing as China growth fears outweighed robust updates from Fresnillo and Rio Tinto.

By 1108 GMT, the FTSE 100 .FTSE was down 38.55 points, or 0.7 percent, at 5,232.47, slipping back having hit its highest close in over two weeks on Tuesday and after rallying more than 9.5 percent since the index hit its 2010 low on July 1.

Banks were the worst performing blue chip sector, dropping back after big gains in the previous session, with Lloyds Banking Group (LLOY.L) worst off, losing 1.5 percent.

Investors were concerned that European Union finance ministers remained divided over what data would be published in the bank stress tests due in 10 days time.

"I think there's a combination of factors (dragging the market down) chiefly profit taking but also certain worries as to what this bank stress testing will deliver," said Stephen Pope, chief global equity strategist at Cantor Fitzgerald.

The tests of the European Union's top banks should show how they could withstand severe shocks without taxpayer help.

ICAP (IAP.L) was the top blue-chip faller, down 5.2 percent after the world's biggest interdealer broker reported volumes slowing significantly in June due to a cut in appetite for risk.

Miners reversed earlier gains as worries over the sustainability of growth in China, the world's largest consumer of metals, outweighed bullish production updates from Fresnillo (FRES.L) and Rio Tinto (RIO.L) and Monday's robust earnings numbers from U.S. metals group Alcoa (AA.N).

Fresnillo was up 0.7 percent, but Rio Tinto (RIO.L) joined the majority of miners lower, falling 0.2 percent after the world's No.2 iron ore miner flagged concerns over a possible double-dip recession and slower Chinese growth.

"Rio's indicating the worry about a slowdown in Chinese growth and I guess that has just impacted on sentiment," Cantor's Pope said.

Investors were looking ahead to industrial output data from China, due out on Thursday, with fears they might fall short of expectations.

BP GAINS CAPPED

Integrated oils were weaker along with the price of crude CLc1, with BP (BP.L) shedding 1.2 percent, having jumped 12.5 percent in the past two sessions.

The oil major said it had delayed a critical test that will determine if it can close a cap at its ruptured Macondo well that has leaked oil into the Gulf of Mexico for the last 12 weeks.

Elsewhere, BAE Systems (BAES.L), Europe's biggest arms contractor, fell 1.5 percent, hurt by a downgrade to "equal-weight" from "overweight" by Morgan Stanley, which cited sustained pressure on defence budgets.

On the upside, tech stocks got a boost after the world's top chipmaker, Intel (INTC.O), posted forecast-beating second-quarter results and gave a stronger-than-forecast next quarter sales outlook, with blue chip microchip designer ARM Holdings (ARM.L) up 3.6 percent, while mid cap CSR (CSR.L) added 2.6 percent.

Riding the coat tails of the chip sector gains, software firms Sage Group (SGE.L) added 1.0 percent.

And positive broker initiations helped travel firms Thomas Cook (TCG.L) and TUI Travel (TT.L), and Compass Group (CPG.L), the world's biggest caterer, add between 0.4 and 0.8 percent.

There was better news on the state of the UK economy on Wednesday, with the number of Britons claiming jobless benefit falling by slightly more than expected last month, official data showed.

"There's a bit of backing away from the 200-day moving average of 5,323, which is to be expected... but if we can get through it (backed by good earnings) then we can expect the FTSE 100 to make some good strides," Cantor Fitzgerald's Pope said.