Britain's benchmark equity index, which had raced to its highest level in nearly 13 years this week, fell sharply for the second straight session on Friday as a decline at major bank HSBC hit the market. Some traders felt the pull-back could accelerate in June although many still believed the stock market's longer-term rising trend remained intact and that the market would end 2013 higher than where it was at the end of 2012.
The blue-chip FTSE 100 fell by 0.6 percent, or 42.45 points, to 6,654.34 points, following on from a 2.1 percent decline on Thursday which was its steepest one-day drop in a year. The effects of the 2008 financial crisis have led central banks to inject liquidity into markets and cut interest rates in order to drive an economic recovery.
Those measures have also hit returns on bonds and driven investors to seek better returns from equities, and this in turn has helped spur a world stock market rally. The FTSE hit near 13-year highs this week but that rally stalled on Thursday over concerns that the US may soon scale back a stimulus measure known as quantitative easing (QE) due to increasing signs of a recovery in the US economy. "Investors are now worried about the end of QE, and no-one wants to be left without a chair when the music stops," said IG chief market strategist David Jones.
HSBC fell 2.1 percent to take the most points off the FTSE 100 index, on concerns that HSBC's $1.9 billion settlement with US authorities over money laundering charges may have stalled. A spokesman for the bank said it was "focused on taking all necessary steps to fulfil its obligations under the agreements with the US and UK governments". The FTSE 100 remains up by 13 percent since the start of 2013 and many investors expect any pull-back to be temporary.
"I think it's just a short blip," said MB Capital trading director Marcus Bullus, who expected the FTSE to resume its upwards trend soon and to test its record closing high of around 6,930 points. However, others added they would wait for further falls before buying back into the market. "I would not buy at these levels. I would want to see a real correction, at least down by another 10 percent or so from the highs," said EGR Broking managing director Kyri Kangellaris.
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