Britain's top share index sank to a five-week closing low on Tuesday as investor confidence was further undermined by the uncertain global economic outlook, with miners bearing the brunt of the sell-off. The FTSE 100 fell for a third day in a row and ended down 56.04 points, or 1.0 percent, at 5,718.39, its lowest closing level since June 24.
Miners dropped along with metals prices after data showed consumer spending in the United States fell unexpectedly in June to show the first decline in nearly two years. Gold, however, rallied to its ninth record high this year as investors moved into perceived safe-haven assets, helping propel Fresnillo to the top of the blue chip leader board. The precious metals miner rose 4.6 percent as it unveiled a 92 percent surge in first-half core profit and raised its dividend by 128 percent.
Randgold Resources, meanwhile, climbed 0.5 percent. "A very tough start of the month with a lot of people positioned for a relief rally pre-empting a US debt ceiling deal," said Lex van Dam, hedge fund manager at Hampstead Capital, which has about $500 million of assets under management.
"But negative economic data around the world are the new focus now. Nowhere to hide really with people's favourite stocks all getting crushed... Gold is king again." The US consumer report followed sluggish US and global manufacturing data on Monday which shifted investors firmly into "risk-off" mode, ahead of Friday's key US jobs report.
"Because of the non-farm payrolls on Friday, investors are taking any underperforming data in the run up to that as a double negative really and keeping sensitivity high," Joshua Raymond, market strategist at City Index, said.
The downbeat data overshadowed the approval of a rise in the US statutory borrowing limit by the House of Representatives on Monday night. The US Senate is expected to pass the measure later on Tuesday. Banks were broadly weaker. Barclays slipped 0.1 percent after posting results, which traders said were mixed but better than expected. HSBC, however, edged up 0.4 percent, building on gains made in the previous session following its better than expected first half numbers. Lloyds Banking Group shed 3 percent and Royal Bank of Scotland fell 2.2 percent, ahead of results on Thursday and Friday respectively.
Hargreaves Lansdown fell 12.7 percent, the top FTSE 100 faller, as traders cited the impact of new rules, published on Monday by the Financial Services Authority (FSA), looking to ban payments by fund managers to platform providers. Pre-earnings nerves also hit GKN, off 4.7 percent, with the engineer due to report first-half results on Wednesday.
Buyers came in for utility stocks for their defensive attractions and as sentiment in the sector was lifted by Hong Kong tycoon Li Ka-shing's agreement to buy Northumbrian Water for 2.4 billion pounds ($3.9 billion) - the biggest take-over this year of a British-listed company.
FTSE 250-listed Northumbrian Water and Pennon advanced 4.5 percent and 3.0 percent respectively, while large-caps Severn Trent and United Utilities added 2.5 percent and 1.1 percent. Other stocks with defensive qualities were also in demand. Energy network operator National Grid rose 2.0 percent, cigarette firm British American Tobacco was up 1.0 percent, and grocer Wm Morrison Supermarkets 1.2 percent firmer. Fashion retailer Next added 1.1 percent ahead of its second-quarter trading update on Wednesday.
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