Britain's FTSE 100 index ended down 0.7 percent on Thursday, pulling back from a six-year high early in the session as oil stocks weighed and US data heightened concerns over the interest rate and global economic outlook. BP fell 1.1 percent, and rival Royal Dutch Shell lost 1.4 percent after J.P. Morgan cut both their price targets.
The FTSE 100 closed down 45.5 points, or 0.7 percent at 6,269.3. Traders said positive sentiment had been overdone on Wednesday after the Bank of England's minutes showed the Monetary Policy Committee voted by a narrow margin of five to four to raise interest rates to 5.25 percent this month.
"It (the FTSE 100) rallied up a lot yesterday as people were talking about no more interest rate rises ... so the chance may be that that was wishful thinking," said Mark Priest, a trader at Tradeindex. Renewed interest rate worries hit the banking sector with HBOS down 0.5 percent, HSBC falling 0.3 percent and Lloyds TSB dipping 0.5 percent.
By mid-session, the index slipped back as US figures showed that the pace of sales of existing homes fell 0.8 percent in December, slightly below economists' expectations. "The FTSE may have made a tentative effort to extend yesterday's gain in early trade, but a comparative lack of domestic corporate or economic data was arguably going to make the rally difficult to sustain," said Jimmy Yates, a trader at CMC Markets.
"The fact we've hit a new six-year high during the day's trade has also seen some profit-taking emerge ... the latest residential property data also underlined the fact that the economy remains in a fragile state."
Drax Group, operator of Europe's biggest coal-fired power station, topped the loser chart, slumping 3.6 percent after downgrades from Citigroup and J.P. Morgan. Citigroup reiterated its "sell" rating and cut its target price to 650 pence from 700 pence, while J.P. Morgan downgraded its rating to "underweight" from "neutral" and cut its price target to 645 pence from 845 pence.
Also on the downside, British Airways fell 2.5 percent after it cancelled some 1,300 flights next week following a breakdown in talks with its largest union over a threatened 48-hour strike by cabin crew. "The stock rallied yesterday into the close on the back of hopes it had been resolved with the unions, but not so this morning," one trader said.
Traders added that a firming oil price is also affecting the sector with easyJet falling 1.1 percent, Air France-KLM losing 3.9 percent and Deutsche Lufthansa dipping 1.2 percent after it said fare yield improvements were expected to slow in 2007.
Mining stocks also dragged down the FTSE 100 after BHP Billiton said a price adjustment would reduce its first-half earnings by $220 million, reflecting a declining world copper price despite maintaining its copper output in the second quarter. Its shares fell 0.6 percent.
Among other miners, Kazakhmys lost 1.1 percent, Rio Tinto and Xstrata both fell 0.7 percent and Lonmin Plc was down 0.9 percent after posting a 10.9 percent rise in first-quarter platinum group metal production.
Vedanta Resources shed 3.4 percent as traders said recent bid speculation that had swirled around the company was subsiding. On the upside, Cable & Wireless gained 0.9 percent as traders cited good numbers from US company AT&T, and pointed to investors switching from commodities to technology stocks such as software firm Sage Group, up 0.9 percent.
Real estate firms were mixed after J.P. Morgan upgraded the sector to "overweight", saying it had underperformed its European peers by 10 percent in the year to date and that the bank saw value in the property sector. Hammerson added 0.2 percent, British Land tacked on 0.6 percent and Land Securities rose 0.1 percent.
"There is so much complacent bullishness around, it's frightening," one trader said about the FTSE 100. "The bid speculation that was around last year just doesn't seem to be around this year ... I think a lot of people are quite nervous on the market."
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