Falls in energy firms and food retailers pushed Britain's top shares 0.4 percent lower on Wednesday, offsetting gains in miners, as Spain's rating outlook cut added to concerns about the global economy's health. The FTSE 100 closed 19.24 points lower at 5,203.89, its lowest closing level in more than a week and mirroring falls in European markets and Wall Street.
Oil and gas firms were weak as crude prices hovered around $73 a barrel, well off highs of around $80 a barrel seen in October. BG Group, BP and Cairn Energy shed 0.4 to 1.1 percent while Royal Dutch Shell posted a 0.3 percent gain. Food retailers were on the back foot. Tesco shed 2.5 percent, extending losses from the previous session when it posted quarterly sales towards the bottom end of analysts' expectations. Within the sector, Morrison Supermarket and J Sainsbury lost 1.2 and 1.1 percent respectively.
Investor sentiment was dampened by a move by ratings agency Standard & Poor's to revise its outlook on Spain to negative and warned that the country faced a risk of a debt downgrade in two years if the government did not take tough action. The news added to concerns among investors who were already unsettled by a ratings downgrade of Greece on Tuesday.
"The Spanish downgrade is really what has got the European indexes moving ... and is weighing on the market at the moment," said David Morrison, market strategist at GFT Global. "We're getting caught up in a bit of scare at the moment about what might get downgraded next and the danger is how financing costs go up from here," he said.
UK life insurers were also under pressure, with Aviva, Legal & General, Old Mutual, Prudential and Standard Life off 0.7 to 5.6 percent. Mining companies were largely in positive territory, underpinned by firmer metals prices with Randgold Resources, Rio Tinto and Xstrata rising 0.9 to 1.9 percent.
Banks were higher, bucking a falling trend among its European peers. HSBC and Lloyds Banking Group were up 0.6 and 1.7 percent respectively while Standard Chartered, which reiterated that its Dubai losses were unlikely to be material, added 1.7 percent. Barclays and Royal Bank of Scotland, however, shed 3.3 and 0.4 percent, respectively.
Earlier British finance minister Alastair Darling outlined plans to impose a one-off levy on bank bonuses and predicted the economy would shrink 4.75 percent in 2009 instead of the 3.25 to 3.75 percent decline originally predicted. Broker upgrades helped select firms buck the weak trend on the index. Industrial property landlord Segro gained 3.7 percent after J.P. Morgan raised its rating to "neutral" from "underweight".
Defensive tobacco companies gained ground, benefiting from a perceived safe-bet appeal. British American Tobacco and Imperial Tobacco advanced 0.3 and 0.8 percent respectively. 3i Group, Land Securities and Vedanta Resources all fell after trading ex-dividend.
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