Britain's top shares index fell for a third day in a row on Tuesday as commodity stocks weighed, though miner Eurasian Natural Resources rose on market talk of a merger with rival Kazakhmys. The commodity-heavy FTSE 100 closed down 50.3 points or 0.9 percent at 5,827.3, hitting its lowest closing level since late March.
The UK benchmark index has fallen 3.7 percent so far this month and is down nearly 10 percent for the year. "A lot of people view the 5,800 level as quite a key one for the FTSE 100. We saw the market in mid-April traded down from here and bounced quite sharply to rally up to 6,400 a month later," said David Jones, chief market strategist at IG Index.
Miners fell along with metal prices. Gold fell more than 2 percent as the dollar rose after US Treasury secretary Henry Paulson said he stood by comments made a day earlier, in which he said he would never rule out currency intervention as a potential policy tool.
BHP Billiton, Rio Tinto, Xstrata, Antofagasta and Lonmin were down between 1.2 and 3.8 percent. Eurasian Natural Resources, however, climbed 2.9 percent after Kazakhmys said it planned to raise its stake in its rival to above 22 percent, leading to market talk of a union between the two companies. Kazakhmys was up 2.3 percent.
Vedanta Resources gained 0.7 percent, with Morgan Stanley starting the company with an "overweight" rating. Heavyweight oil shares BP and Royal Dutch Shell both slipped 2 percent.
Banks were generally weaker, with Royal Bank of Scotland, Lloyds TSB, HBOS, Standard Chartered and Alliance & Leicester down between 0.2 and 4.9 percent. Barclays and HSBC, however, rose 0.6 to 0.9 percent.
Bank of England Governor Mervyn King said the financial market crisis was not yet over as he set out his thinking on how to prevent future crises, including the creation of a new liquidity facility. His US counterpart Federal Reserve Chairman Ben Bernanke signalled on Monday that the central bank would act to strongly resist rising inflation, as energy costs soar. His speech heightened expectations for rates to rise.
"Most investors are bearish on the basis that the economic news can only get worse and that means profit news will only get worse," said Lawrence Peterman, investment director at brokerage Eden Financial.
Housebuilders also suffered after Goldman Sachs cut its rating on several stocks, while the threat of higher interest rates coupled with slowing economic conditions also weighed on the sector. Persimmon topped the FTSE 100 losers, down nearly 10 percent. Its mid-cap rivals, Taylor Wimpey, Redrow, Barratt Developments and Bovis Homes were off between 7.5 and 24 percent.
Tesco lost 2.5 percent after Britain's biggest retailer said first-quarter like-for-like sales, excluding petrol, in its core UK market rose 3.5 percent, slowing from the start of the year as clothing and furniture sales were hit by the consumer squeeze. Its rivals Sainsbury and Morrison fell 2.4 and 0.7 percent, respectively.
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