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Weak commods drag FTSE to 2-month closing low

Published 07/06/2009, 12:09 PM
Updated 07/06/2009, 12:20 PM
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* Oil majors slip as crude falls to around $64/barrel

* Miners fall; metal prices weak

* Defensive pharmaceuticals in demand

By Simon Falush

LONDON, July 6 (Reuters) - Weaker crude and metal prices sent energy stocks and miners sliding, dragging Britain's top share index down 1 percent to its lowest close in more than two months on Monday.

The FTSE 100 index ended down 41.37 points at 4,194.91, its weakest close since April 29, though strength in defensive stocks prevented a sharper decline.

Miners, hit by softer metal prices, were the main drag on the index.

Lonmin was the heaviest top-flight faller, down 8.5 percent, while Xstrata, Kazakhmys Anglo American and BHP Billiton shed 5 to 7.5 percent.

Rio Tinto shed 7 percent after it agreed to sell its Americas food-packaging assets for $1.2 billion to packaging group Bemis, raising more much-needed cash for the indebted miner.

The fall on London's blue-chip market mirrored weakness in Europe, Asia and on Wall Street as weak jobs data on Thursday cast a long shadow over the investment outlook.

The FTSE 100 index has surged more than 21 percent since hitting a six-year trough in March, though it is still down 5.4 percent for the year.

"The payrolls data was a sign that expectations were running ahead of reality, and it was a catalyst for a return to negative sentiment, which has continued through to today," said Peter Dixon, economist at Commerzbank.

The U.S. non-farm payrolls showed that the world's biggest economy shed 467,000 jobs in June, 100,000 more than expected by economists.

DEMAND SLACKENS

Like miners, falling oil majors were a heavy burden on the blue-chip index on Monday as demand for energy slackened, pushing the crude price to a five-week low below $64 a barrel, though it has since recovered slightly.

BG Group dropped 2 percent, while BP and Royal Dutch Shell fell 2.6 percent and 2.1 percent, respectively.

The sector was also hurt as HSBC cut its rating on Shell to "neutral" from "overweight" and cut its price target on BP and BG Group.

Banks also suffered from investor pessimism as investors looked to get out of stocks seen as sensitive to risk. Royal Bank of Scotland, Barclays, Standard Chartered, HSBC and Lloyds Banking Group retreated between 0.5 and 2.9 percent.

Defensive stocks were in demand, as investors piled into assets perceived as resilient to economic weakness.

Household products firm Reckitt Benckiser grabbed the top spot on the FTSE 100 leaderboard, up 2.5 percent, while cigarette maker British American Tobacco and confectioner Cadbury both added 1.8 percent.

Pharmaceuticals were the biggest positive for the index, with AstraZeneca, Shire, and GlaxoSmithKline climbing 0.9 to 1.1 percent.

On the second tier, easyJet was among the biggest gainers, up 2.2 percent following solid June traffic numbers from the discount airline, which prompted Numis Securities to raise its rating to "add" from "hold".

The U.S. corporate earnings season gets underway this week, with results expected from oil major Chevron and aluminium producer Alcoa.

In a relatively light week for data, the main macro focus will be on the latest monthly Bank of England Monetary Policy Committee meeting which starts on Wednesday, with the interest rate decision on Thursday. (Editing by Will Waterman)

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