Britain's top shares edged lower on Friday, having posted their biggest weekly decline in four months, as worries about bank stress test results due after the market close took their toll on investor sentiment. The UK benchmark index ended 3.29 points, or 0.1 percent, lower at 5,843.66, leaving it down 2.5 percent for the week.
Banks fell, having oscillated between positive and negative territory throughout the day as traders readied themselves for the publication of the stress test results by the European Banking Authority at 1600 GMT. Lloyds Banking Group led the sector lower, down 2.5 percent, while Barclays shed 1.1 percent.
"Everything's just a little bit cautious ahead of these stress test results," David Jones, chief market strategist at IG Index, said. "All this week 5,800 (the week's lows) has propped up the market, so I think that if there are no shocks in these results, then next week we are reasonably poised for a bit of a rally." The credibility of regulators is on the line after last year's stress test failed to convince investors that banks had stabilised after the financial crisis.
"It looks as if it's going to be a more rigorous test this time round. It's part of the process of rebuilding confidence in the financial system, which is very important," Henk Potts, market strategist at Barclays Wealth, said. "It will be interesting to see one, how many fail, and two, what solutions will be implemented to make sure the financial system will continue to operate successfully on Monday morning."
The bulls had found some cause for enthusiasm in strong earnings from Google Inc and Citigroup Inc, but this was tempered by signs of weakness in the US economy. US blue chips pared early gains by London's close, up 0.1 percent, after a report showing US consumer sentiment slipped in July to its lowest since March 2009, and a weak reading from the manufacturing sector in New York state.
Miners declined as concerns over global growth clouded the demand picture, with BHP Billiton among the worst off, down 1.9 percent, after it swooped for US gas producer Petrohawk Energy Corp in a $12.1 billion deal. "What does on the surface look like an expensive venture into alternative energy could reap significant rewards as Billiton gets in at ground level into a potentially highly lucrative industry," Manoj Ladwa, senior trader at ETX Capital, said.
Fresnillo bucked the weak sector trend, up 1.9 percent and adding to recent good gains, as J.P. Morgan Cazenove lifted its rating to "overweight" from "neutral", describing the precious metals miner's second-quarter production report, unveiled on Thursday, as "impressive".
Elsewhere, luxury group Burberry grabbed the top spot on the FTSE 100 leaderboard, up 4.2 percent at a fresh high, after this week posting first-quarter sales that triggered a number of broker target price rises. Traders said the market perceives Burberry as a growth stock against a tough economic backdrop, with Chinese demand for premium brands looking set to help it continue to outperform.
BSkyB added 1.9 percent as Rebekah Brooks, the most senior newspaper executive in Britain, resigned as chief executive of News International, yielding to political and investor pressure over a phone-hacking scandal undermining Rupert Murdoch's media empire on both sides of the Atlantic.
BSkyB's shares had dropped about 18 percent over the past week and a half amid controversy over Murdoch's News Corp's bid for the 61 percent of the British satellite broadcaster it does not already own, ultimately abandoned in the wake of the scandal. Deutsche Bank resumed coverage on BSkyB with a "buy" rating and 850 pence target.
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