The FTSE 100 of Britain's leading shares ended down 0.6 percent on Thursday as the Bank of England (BoE) raised interest rates to their highest level in six years and miners rose in a directionless trading session. As expected, the BoE hiked rates for the fifth time in less than a year to 5.75 percent, while the European Central Bank kept its rates on hold at 4 percent.
Many analysts predict UK rates will rise to 6 percent before the end of the year. The FTSE 100 closed 37.9 points lower at 6,635.2 as traders struggled for direction after US markets were closed on Wednesday for the Independence day holiday. "It's been a choppy day for the London index but overall direction has been somewhat lacking," said Paul Webb, a trader at CMC Markets. "There has been little on the economic or corporate calendars with an as-expected quarter point rate hike from the BoE arguably being the only notable event."
On the upside, mining was the standout sector accounting for 7 positive index points as traders cited continued consolidation talk and firm base metal prices. Xstrata added 2 percent and Rio Tinto climbed 1.5 percent. BHP Billiton gained 1.7 percent, also helped by a positive Credit Suisse note. But inflationary concerns dominated most traders' thoughts.
Banking shares fell, with lenders Northern Rock and Alliance & Leicester both weighing. Lloyds TSB bucked the trend to add 1.2 percent after Citigroup upgraded the stock to "buy" from "hold" and lifted its price target.
The sentiment also hit Wolseley, the world's largest distributor of plumbing and heating products and building materials, which fell 2.6 percent despite announcing a number of acquisitions, traders said. On a quiet day on the corporate calendar, traders said the US non-farm payroll numbers on Friday will be closely watched.
Vodafone lost 2.4 percent after media reports that rival O2, a unit of Spain's Telefonica, was poised to clinch a deal to be the exclusive network partner for Apple's iPhone.
Vodafone had been seen as a favourite to clinch a deal. BT Group fell 2.4 percent in sympathy. Oil stocks dragged as oil retreated from a 10-month high above $74 after US data showed refiners raised production to meet summer gasoline demand and crude supplies had risen to meet their needs.
BP dipped 0.9 percent and rival Royal Dutch Shell lost 1 percent. "Wall Street's uncertain start has also failed to provide any real momentum," said CMC's Webb. "Many traders will wait until the non-farms are released tomorrow before deciding just how to finish the week."
Among other individual stocks Morrison climbed 1.3 percent after the Daily Telegraph said the supermarket group had received several approaches for a portfolio of 25 sites. Britain's biggest back-office firm Capita Group rose 1.4 percent to 745-1/2 pence after Deutsche Bank raised its price target for the stock to 800 pence from 700 pence.