Britain's top share index closed marginally lower on Wednesday, as weakness in banks offset gains in defensive stocks with investors jostling positions ahead of a US interest rate decision. London's blue chip index bobbed around but closed down 2.32 points at 5,772.99, as cautious investors awaited the Federal Reserve's assessment of the economy and any plans for dealing with renewed weakness.
Traders said there was hope that the FED might hint at the introduction of some form of QE3 but expected interest rates to remain unchanged as the US economic recovery appears to be losing steam. The FED is seen dialling down its GDP forecasts as its second round of quantitative easing nears its end.
"Investors are looking for action but they might be disappointed," Jimmy Yates, head of equities at CMC Markets, said. "Despite leading indicators in the world's biggest economy weakening it seems likely the FED will continue its wait and see policy, before committing to any further stimulus packages." In the UK, some members of the Bank of England's Monetary Policy Committee raised the possibility of future quantitative easing, as it judged the growth outlook had weakened, minutes to its June 8-9 meeting showed. British banks fell, having been among the top gainers on Wednesday ahead of the confidence vote in the Greek parliament, with Barclays shedding 2.6 percent.
Having won the vote of confidence, Greece now faces the task of passing an austerity plan to secure a new bailout from the European Union and IMF, with no further newsflow about that due until next week. Severn Trent and United Utilities fell as they traded without their payout attractions.
Cautious investors tucked into defensive stocks such as British American Tobacco and drugmaker GlaxoSmithKline up 0.8 and 0.5 percent, respectively. Precious metals miner Randgold Resources was up 3.0 percent as gold neared two-month highs. Investors turned to the metal's safe haven qualities in the face of uncertainty over Greece and on expectations that government's around the globe will continue their loose monetary policy.
Elsewhere, hedge fund manager Man Group rose 4.9 percent, extending gains in the previous session on the back of a revival of vague takeover rumours, with a welter of positive broker comment supporting the stock. Credit Suisse upgraded its rating for Man to "outperform" from "neutral", while Goldman Sachs initiated coverage of the stock with a "buy" rating and 310 pence target price.
Mid-cap fund manager Henderson also benefited from an upgrade to "buy" by Citigroup, taking on 0.2 percent. Real estate stocks were higher, with British Land and Hammerson adding 1.4 percent and 0.2 percent respectively, as Espirito Santo initiated coverage on both with "buy" ratings. "The cyclical recovery in UK real estate rents is gathering pace and the large-cap UK REITs are positioned to capitalise," Espirito Santo said in a note.
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