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Britain's benchmark FTSE 100 index slithered further below 5,000 points to score its lowest close for over a month on Thursday as oil majors BP and Shell fell 2 percent after a retreat in the oil price. The Bank of England surprised no one when it left rates on hold at 4.75 percent for the seventh month in a row but many analysts predict the cost of borrowing will rise in the next three months.
Those concerns and a US oil price still stubbornly high have fanned nervousness about inflation and look likely to keep the FTSE stuck in a narrow range.
Moving against the overall trend, InterContinental Hotels climbed 1.7 percent after posting higher profits and returning cash to investors, while supermarkets group Tesco rose after industry figures showed it gaining even more UK market share.
The FTSE 100 index closed 34.0 points down at 4,962.1, its lowest finish since February 4, and according to market watchers paying the price for its rapid run-up from around 4,500 in the last seven months.
"I'm not surprised to see a bit of consolidation. With the threat to equity investors' confidence in terms of rising bond yields and rising oil prices now's as good a time as any for consolidation to take place," said Alex Scott analyst at private client money manager Seven Investment Management.
For Martin Dobson, Broking Manager at brokers Hoodless Brennan, breaking convincingly above 5,000 level could prove difficult, especially as high oil prices promise to stoke inflation.
"Unless we get a decent merger or breakup involving one of the FTSE 100 companies, with most of the corporate results out of the way the market just feels like it's trading at fair value," said Dobson.
Tesco's continuing market share gains attracted glowing comments from market watchers as the shares rose 1.9 percent.
"There is a definite feeling that Tescos is a safe bet at these levels as they continue to increase their stranglehold in the sector," said Ian Griffiths, trader at brokers CMC Group.
Sugar and sweetener company Tate & Lyle made a late dash higher, closing up 3.4 percent on talk the sugar cane importer will benefit from European sugar reforms which will bear down on sugar beet producers.
Europe's farm chief dropped hints on Thursday that price and quota cuts under her plans to shake up the EU sugar sector may have to go deeper than foreseen.
Mining shares, for many sessions the powerhouse pushing up the FTSE, stepped off the pace with Xstrata, Antofagasta and Rio Tinto all down more than 2.5 percent.
The falls in BP and Shell mirrored a drop for US rival Exxon after it cautioned shareholders that surging oil prices did not mean its results would be anything more than "boringly consistent".
Plumbing supplier Wolseley featured among blue-chip casualties, down 1.8 percent.
A price war broke out among midcap mobile phone operators as cut-price mobile phone brand easyMobile launched its first European no-frills operation in Britain. Carphone Warehouse almost immediately decided to halve tariffs on its Fresh service.
Virgin Mobile, seen as most at risk because of the aggressive pricing of new cut-price entrants, fell 4.2 percent, while Carphone Warehouse pushed up that much.
Among mid-cap gainers, aerospace group Cobham rose 3.4 percent after its 2004 profits grew nearly 9 percent, helped by acquisitions and US demand.

Copyright Reuters, 2005

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