UK stocks closed sharply down on Tuesday as concerns about more US interest rate hikes rattled investor confidence, but the world's biggest airports operator BAA rose after agreeing to a take-over bid.
Interest rate jitters - which helped inspire a 5 percent fall on the FTSE in May - were revived when US Federal Reserve Chairman Ben Bernanke pledged to remain vigilant on inflation.
His comments were echoed by another Fed policymaker on Tuesday who said it was safer to err on the side of "going a little too far" in fighting inflation. Analysts said both sets of comments had unsettled investors even after May's sell-off.
"The Fed has said it is going to be data dependent - that possibly puts more impact on the short term daily noise that data releases can have," said Alex Scott at Seven Investment Management. "That is not a happy position for markets to be in - at the mercy of short term changes in the pattern of the data rather than a trend."
The FTSE 100 index closed down 92.3 points, or 1.6 percent, at 5,669.8 points
The index has tumbled from a five-year high of 6,137.1 points reached in April, falling as much as 10 percent from that peak during May to a trough of 5,510.5 points as US interest rate concerns combined with falling commodities prices to shake sentiment.The market had stemmed those losses in late May but remains volatile.
"We are still within the range of the falls we have seen over the past few weeks. It is quite hard for investors to take a decisive view at the moment when it is still unclear how much of the leverage unwind and the removal of speculative trade has to go."
Mining stocks such as Anglo American fell heavily, contributing about 18 points to FTSE weakness. Anglo American shed 5 percent, Xstrata lost 5.8 percent and BHP Billiton retreated 4.5 percent after copper and gold prices fell. Oil heavyweights such as BP also weighed on the index, as oil prices joined lower metal prices in a commodity sell-off.
On the upside, BAA was one of just a handful of FTSE 100 gainers, up 2.2 percent after the airport operator agreed a deal to be taken over by Spanish construction firm Grupo Ferrovial, rejecting a higher offer from Goldman Sachs.
Water company Severn Trent, which reported soaring profits, rose 3.9 percent. Most stocks ended lower, however, with miners dominating the list of fallers. Analyst John Meyer at Numis said the Federal Reserve's determination to keep inflation under control was concerning for the sector.
"This raises the risk for further US interest rate rises and a slower US economic environment," he wrote in a note to clients. "Continuing US consumption and a relatively strong US economy is seen as key to the maintenance of demand for goods and as a driver for demand for metals." Concerns about an economic slowdown also hit fund managers with US operations such as Amvescap, off 4 percent.
Meanwhile mid-cap miners Vedanta and Lonmin and power company Drax are expected to gain promotion to the FTSE 100 in the quarterly index reshuffle at the expense of Cable & Wireless, Ladbrokes and Daily Mail, analysts said. Details of the rejig will be announced after Wednesday's close.
Comments
Comments are closed.