Britain's top share index shed 1.1 percent on Tuesday knocked by weakness in heavyweight banks, miners, and oils, with defensive issues back in favour headed by International Power after pleasing first-half results. The FTSE 100 index was 50.86 points lower at 4,671.34 by the close of the session, weakening for a second day after hitting a 10-month closing high of 4,731.56 on Friday.
"Banks and miners suffered the most as investors expressed some caution ahead of the BoE (Bank of England) inflation report and Fed rate decision, both due tomorrow, by booking some profits," said Mic Mills, senior trader at spread betters ETX Capital.
US blue chips were also 1.1 percent lower by London's close with the latest rating-setting FOMC meeting kicking off on Tuesday, and a decision by the Fed due on Wednesday. Banks were the main drag in London, with Lloyds Banking Group the biggest faller, down 7.1 percent on recent reports it is considering a multi-billion pound rights issue.
Royal Bank of Scotland, Barclays, Standard Chartered and HSBC fell 0.6 to 5.5 percent. The British government is close to hammering out an agreement about how to insure loans granted to Royal Bank of Scotland and Lloyds Banking Group under its 580 billion pound asset protection scheme, the Guardian newspaper reported.
Life insurers shed some of Monday's gains as profit takers moved in, with Aviva, Old Mutual, Legal & General, and Prudential losing 4.1 to 6.0 percent. Friends Provident followed the sector trend, dropping 2.7 percent as it agreed a 1.86 billion pound take-over from Resolution that valued the life insurer at a 6 percent premium to Monday's closing price.
Resolution shares shed 7.6 percent on the deal. Real estate issues fell as the sector got cold-shouldered, with British Land, Land Securities, Hammerson, and Liberty International losing 3.6 to 5.9 percent. Arbuthnot cut its rating for Land Securities to "neutral".
Miners and oils retreated with commodity prices as crude fell below $69 and copper prices weakened. Kazakhmys, Eurasian Natural Resources, Xstrata, Antofagasta, BLT Billiton, and Rio Tinto shed 1.6 to 6.0 percent.
BP, BG Group, and Cairn Energy lost between 0.2 and 2.3 percent, but Royal Dutch Shell managed to hold firm, adding 0.8 percent. Power generation firm International Power was the top riser, up 7.3 percent, after it reported a 12 percent rise in profits as currency translation effects helped to offset challenging US and British markets.
Other utilities were also wanted as defensive attractions returned. National Grid, Scottish & Southern Energy, and United Utilities were up 0.7 to 1.1 percent. Tobacco issues were in demand too, with British American Tobacco and Imperial Tobacco up 0.8 and 1.0 percent, respectively.
Drinks group Diageo gained 0.8 percent, boosted by a Deutsche Bank upgrade to "buy" from "hold". On the economic front, Britain's goods trade gap with the rest of the world widened slightly more than expected in June as the oil balance swung into deficit following summer maintenance work, official data showed.
The decline in British house prices softened further, according to government data, which showed a 10.7 percent decline on the year in June, after a 12.7 percent annual decline the month before. The numbers followed news overnight from the Royal Institute of Chartered Surveyors that there is growing evidence that market conditions in England and Wales are stabilising after the financial crisis.
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