Widespread falls among utilities and a dip in drugs stocks whipped Britain's FTSE 100 index to a lower close on Wednesday, halting the recent push back to near 3-year highs, although miners were in demand. Scottish & Southern Energy dropped 3 percent, while National Grid Transco and United Utilities lost 2.5 percent as traders reported widespread profit-taking after strong recent sector gains.
"There's a lot of paper coming to the utilities market this year. We've got the Gaz de France float. Since March the utilities have been up strongly and people are taking a bit of money out of the sector," said a trader.
A rise in crude oil futures above $56 a barrel on a larger than expected fall in US crude supplies spun Wall Street lower in afternoon business, dragging the London market back with it and undermining earlier rally attempts.
The FTSE 100 closed 27.3 points down at 5,019.5, unravelling some of the gains which have pushed the index up 1 percent since the start of June. The index earlier on Wednesday hit 5,060.8, its highest since February's 2-1/2 year high around 5,078.
"Oil is still going north. You've got over-optimism on rate cuts (in Britain) and that's feeding back into the market. We're seeing profit-taking after incredible runs in utilities," said Stephen Ford, fund manager at stockbroker Brewin Dolphin.
Ford expressed doubt that the momentum which has fired the FTSE back to within touch of multi-year highs can be maintained.
"If we look out to quarter four the slowdown in all the economic surveys tells us that profit margins are coming under pressure and we probably haven't got the momentum to break through 5,050 in the short term. We're probably going to need an external push to get a bit of excitement back in the market," Ford said.
Miners and metals stocks stood out among the gainers with Johnson Matthey up 1.8 percent while BHP Billiton and Xstrata added some 1.2 percent each.
Traders said the shares were "playing catch-up" after lagging the market in recent days, while Barclays Stockbrokers said a 16.6 percent surge in China's industrial output for the year to May was positive for the sector.
China's need for raw materials to feed its economy has been a major source of demand for metals.
Dealers added Xstrata had been supported by a note from UBS which they said reiterated a "buy" rating for the stock and said commodity prices had remained higher than many commentators had expected. Retailer Marks & Spencer closed with a 1.4 percent gain, bolstered by an upbeat meeting between the firm and analysts along with talk that an Icelandic investment group was building a stake, although analysts expressed scepticism a bid would emerge.
Weak drugs took their toll on the FTSE with AstraZeneca falling 1.3 percent after the EU fined the firm for blocking generic competition to its ulcer drug Losec. Dealers said a 1.5 percent fall in GlaxoSmithKline was part of the wider switch away from defensive stocks.
British American Tobacco was another talking point, rising 0.6 percent after J.P. Morgan raised its price target on the stock. "A steep decline in US legal risk could allow BAT over the next three years to re-leverage its balance sheet. Combined with 10 billion pounds in pre-dividend free cash flow over 2005-09E, we believe this makes BAT a compelling investment case," the investment bank told clients.
Telecoms operator BT fell 1.8 percent as analysts gave a lukewarm response to its new "Fusion" service, which offers a cell phone that switches between fixed and mobile networks. "The feeling is they've had a good run. This isn't the greatest thing since sliced bread and we'd probably say sell into any strength," said Mark McCutcheon, head of dealing at brokers Gerrard.
Comments
Comments are closed.