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FTSE falls as clouds gather over global recovery

Published 09/23/2010, 07:00 AM
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* FTSE down 0.8 percent; UK, EU data add to U.S. woe

* Banks, commodity stocks lead fallers, risk appetite fades

* Oils services higher, supported by bullish broker note

By David Brett

LONDON, Sept 23 (Reuters) - Britain's top share index fell by midday on Thursday as banks and commodities led a broad-based sell-off, with sentiment blighted by persistent concerns over the health of the global economic recovery.

By 1035 GMT, the FTSE 100 was down 41.53 points or 0.8 percent at 5,510.38, having ended down 0.4 percent at 5,551.91 on Wednesday, its second consecutive session of losses.

"FTSE has outperformed Europe recently, and most European markets are looking high on the technicals, so we may be looking for a bit of a pull-back," said Jimmy Yates, head of equities at CMC Markets.

He said the FTSE decline stopped at 5,480 on the December future, "which is a decent support level. A break below this should start another decent move down."

Banks were the biggest fallers. Lloyds Banking Group and Royal Bank of Scotland were off 2.0 and 0.5 percent respectively, as uncertainty over what steps governments will need to sustain the economic recovery weighed on equities.

Debate on the Bank of England's Monetary Policy Committee is in a particularly aggressive and vigorous phase as policymakers struggle to assess the relative strength of upside and downside risks to inflation, BoE Chief Economist Spencer Dale said on Wednesday.

UK mortgage approvals hit their lowest level since April 2009, data from major British banks showed, suggesting the market will stay weak.

Investors fretted about Europe's economy after data showed the pace of growth in the euro zone's services and manufacturing sectors slowed more than expected this month.

Wall Street futures pointed to a lower open ahead of the release of weekly initial jobless claims, existing home sales for August and leading economic indicators for August.

RUNNING OUT OF STEAM?

Despite the recent retreat, the FTSE 100 remains up around 400 points since its late September low of 5,109.40, and 700 points higher than its 2010 low in early July.

"Technical factors ensure equities are supported even if like Wile E. Coyote they are pedaling furiously in mid-air having run of the end of a cliff," Jeremy Batstone-Carr, head of research at Charles Stanley, said.

"It is likely that we will see clearer signs of how the market is interpreting the (U.S. manufacturing) data as it comes out over the next week or so through the currency, bond and commodity markets."

Gold, base metal and crude oil prices extended recent gains as the prospect of extensions to quantitative easing programmes in the United States and the UK fuelled demand for commodities, while the dollar retreated.

However, commodity-linked equities failed to hold onto early gains as investors' risk appetite faded. Miners Kazakhmys and Antofagasta fell 2.2 and 1.4 percent respectively, while oil major BP shed 0.5 percent.

On the upside, however, oil services stocks were firmer, supported by a bullish note from JP Morgan Cazenove, which said it sees signs of a broad and sustainable earnings upgrade trend for pan-European oilfield services.

Amec rose 1.1 percent and Petrofac gained 0.4 percent.

Elsewhere on the downside, Shire and AstraZeneca each dropped 1.6 percent after Exane BNP Paribas cut its respective ratings on both the drugmakers.

(Editing by Michael Shields)

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