UK stocks had their worst fall in months on Wednesday as the effect of surging oil prices, a shock earnings cut from carmaker General Motors and a weak dollar all helped push the FTSE 100 to a 6 week closing low. A raft of stocks going ex-dividend, including heavily weighted banks HSBC, Lloyds TSB and HBOS, also took about 19 points off the blue chip index.
But BAE Systems, Europe's biggest defence group, managed to escape the general gloom to end up 1.4 percent after Chancellor of the Exchequer Gordon Brown promised an extra 400 million pounds of defence spending for the year ahead in his annual budget.
Miners also edged higher as copper prices held near all-time peaks, driven by Chinese buying and fund investors.
The handful of gainers did little, however, to make up for losses elsewhere and the FTSE 100 index ended down 62.6 points, or 1.3 percent, at 4.937.6. The move marked the FTSE's biggest one-day drop in points since August 2004 and also its lowest close since February 3, according to Reuters data.
Wall Street also failed to keep its head above water, with the Dow Jones industrial average down 90 points by the time London closed.
"What we've seen over the last few weeks is the FTSE has been fairly resilient. What's happened in the past few days is that resilience has fallen away," said Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown.
"There's almost been a number of factors taking one's eye slightly off the ball in terms of what's going on elsewhere," Hunter added, saying UK investors had been encouraged by recent take-over rumours and strong corporate earnings but slow to account for the effect of a rising oil price and weak dollar.
Crude oil prices rose above $56 a barrel to set a new all-time high, increasing concerns that higher energy costs will hit corporate profits and consumer spending, while the dollar fell sharply after a record US current account deficit.
A weaker dollar is a negative for companies exporting to the US and for multinational firms that have a high proportion of dollar sales but report in another currency.
Auto parts suppliers GKN and Tomkins, which both derive a large portion of their sales from the US, were doubly hit by the weak dollar and news that carmaker General Motors slashed its 2005 outlook due to poor North American auto sales. GKN ended down 1.5 percent and Tomkins lost 2.5 percent.
The mood was more positive on the FTSE 250 index, where Crest Nicholson ended 9.4 percent higher after the housebuilder rejected a 480 million pound take-over offer from its biggest shareholder Heron.
The prospect of a tussle for Crest pumped up other shares in a building sector struggling with a flat UK housing market, with Barratt Developments up 3.9 percent and Persimmon up 4.5 percent.
Bid rumours also boosted high street retailer Woolworths after a newspaper said it had started talks with Apax Partners, the private equity firm whose take-over approach was rejected by Woolworths last month. Shares in the variety store chain added 5.7 percent.
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