Britain's top share index fell for a fourth straight session on Thursday as weakness in telecoms led by Vodafone and BT Group outweighed gains in energy stocks and beaten-down banks. The FTSE 100 closed down 7.65 points, or 0.2 percent, at 4,052.23.
The UK benchmark is down 8.6 percent this month after falling more than 31 percent last year - its worst annual drop since its launch in 1984. BT Group slumped 9.1 percent after it warned it would take charges of 340 million pounds ($471 million) at its Global Services unit for the quarter to end-December that would outweigh better-than-expected results at the rest of the group.
Index heavyweight Vodafone lost 3.2 percent after Britain's Competition Commission said Vodafone, T-Mobile, Orange, O2 and H3G may have to cut the price they charge to connect incoming calls to their networks. Banks were among the top sectoral gainers, rebounding from a recent battering. Lloyds Banking Group, Standard Chartered and HSBC were up between 2 and 8.9 percent.
But Barclays sagged more than 10 percent and Royal Bank of Scotland lost 2.4 percent amid concerns that the UK government may have to nationalise major banks. "People are changing their probability distribution on whether the banks will be nationalia. Fox-Pitt, Kelton said the full nationalisation of any of the UK banks remains unlikely and that the new measures introduced by the government are positive for the sector.
The economic picture remained glum, with UK manufacturers' orders suffering their biggest drop in January since July 1992. The numbers of US workers lining up for jobless benefits surged last week, while new housing starts and permits hit record lows in December, pointing at an acceleration in the economy's downward spiral.
"Along with the deterioration in the real economy, the bad debt cycle has resumed. This renews the pressure on banks to shore up equity by means of capital increases that at current valuation levels would be very dilutive indeed," Societe Generale said in a note. Britain's financial regulator said it did not believe short selling had driven sharp falls in banking share prices over the past week.
Oil producers added the most points to the index. BP, Royal Dutch Shell, BG Group, Cairn Energy and Tullow Oil advanced 0.4 to 3.7 percent. Autonomy put on 3.8 percent as investors showed a good appetite for a placing of around 21.6 million shares by the software company to part-fund its $775 million acquisition of US group Interwoven Inc.
Morgan Stanley recommended investors buy FTSE and sell Germany's DAX as depreciation in sterling, which traded near a 23-year low against the dollar, had driven strong UK equity outperformance. "Historically, periods of a sharply depreciating pound are usually positive for UK equities' relative performance against their global peers.
This has also been true this time," it said, adding since August 2007 MSCI UK had outperformed MSCI World by 15 percent and MSCI Europe ex UK by 25 percent. On the downside, Wm Morrison Supermarkets sank 4.4 percent on disappointment that Britain's fourth biggest grocer did not upgrade full-year profit forecasts despite delivering underlying Christmas sales growth. Peers Sainsbury and Tesco dropped 3.5 and 0.4 percent, respectively.
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