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Miners slide, dragging FTSE to 5-week closing low

Published 01/20/2011, 12:37 PM
Updated 01/20/2011, 12:40 PM

* FTSE 100 off 1.8 percent

* Miners slammed by China growth worries

* Invensys falls after trading update

By Tricia Wright

LONDON, Jan 20 (Reuters) - Britain's top share index sank to its lowest closing level in more than five weeks on Thursday, weighed down by mining stocks on concerns over potential further monetary tightening by China and its impact on demand.

The FTSE 100 closed down 108.79 points, or 1.8 percent, at 5,867.91, its lowest close since Dec. 13.

Miners were the standout fallers, tracking metal prices lower after soaring growth data from China, the world's biggest consumer of raw materials, heightened fears of interest rate rises there.

"I think maybe we're reading too much into this. The fall looks a bit overdone in the context of what's happening in other markets," Peter Dixon, economist at Commerzbank, said.

"I'm inclined at this moment to say that this is noise (a market reaction to something which doesn't appear to be fundamentally justified), and maybe we've got a bit of profit taking going on."

BHP Billiton fell 3.6 percent, slightly outperforming a 4 percent-decline in the British mining index, after issuing output figures.

Traders said Burberry, off 4.1 percent, was being hurt by the luxury goods group's exposure to China.

Engineering group Invensys topped the blue chip fallers' list, off 7.8 percent, as weakness in orders at its rail division soured its trading update.

Food producer to clothing retailer AB Foods also fell after a trading update, down 3.2 percent.

The company said the effect of severe British weather on sugar beet still to be processed will cut into its sugar profits this year, with analysts putting the likely hit as high as 20 million pounds.

The banking sector ended the day fairly flat, despite U.S. peer Morgan Stanley posting stronger than expected quarterly revenue.

U.S. stocks fell as upbeat economic data on jobs and housing failed to offset a selloff in the technology and materials sectors.

On the upside, National Grid added 1.5 percent, as JPMorgan raised its rating on the stock to "overweight" from "neutral" on valuation grounds.

"The China concerns are starting to weigh on the other indices now and everything is so interconnected," David Morrison, market strategist at GFT Global, said.

"We've got austerity measures in Europe, high unemployment in the U.S., housing markets looking grim; in the UK we've got our own issues: tax hikes and a general concern now about not only retailers but about the nasty pick-up in inflation." (Editing by Elaine Hardcastle)

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