Britain's leading shares faltered by the close on Tuesday as investors lost their nerve ahead of news from the US Federal Reserve, with banks and miners the biggest fallers. The Fed appears set to debate pumping billions of dollars more into the sluggish US economy, but is likely to hold off any action while it takes further readings on the health of the recovery.
The FTSE 100 closed down 26.35 points, or 0.5 percent, at 5,576.19, well off the session high of 5,635.72. It had gained 1.7 percent on Monday, when the index closed at its highest level since late April. FTSE volumes were light, however, at just 70 percent of their holiday-thinned 90-day average.
Banks, which enjoyed good gains in the previous session, edged back as investors became jittery awaiting the outcome of the Fed policy-setting meeting. Royal Bank of Scotland, HSBC and Lloyds Banking Group shed 0.7 to 1.3 percent. "It's understandable to see investors being reluctant to continue buying stock that might lose value overnight if the US markets get a nasty surprise and drop dramatically," Angus Campbell, head of sales at Capital Spreads, said.
US residential construction rose more than expected in August to a four-month high, suggesting the embattled housing market was starting to stabilise. Miners, which had also bounced on Monday, fell along with base metal prices. Kazakh miner ENRC was the biggest decliner in the sector, down 2.7 percent as it spent $670 million to expand its presence in Brazilian iron ore and further diversify into another emerging market, Latin America.
Oil service companies were heavily sought after FTSE 250 firm Wellstream Holdings said it had received several bid approaches. Blue chip players AMEC and Petrofac gained 0.8 percent, while Wellstream shares jumped more than 28 percent to their highest in nearly two years.
"Large oil service businesses are 'cashed up' and looking for businesses to add to the geographic or technological footprint," Evolution Securities said in a note. Mid-cap peers in the sector John Wood Group and Hunting climbed 6.6 and 3.1 percent respectively.
Integrated oils were in demand, with BP up 0.8 percent, extending gains on Monday after news it had permanently sealed its ruptured Gulf of Mexico well. Oil explorer Cairn Energy was up 2.3 percent after it said a well being drilled in Greenland found evidence of oil proving a working hydrocarbon system in Baffin Bay, raising hopes that the region could become a new oil producing basin.
Vedanta Resources, which is in the process of buying a controlling stake in Cairn India from Cairn, rose 2.3 percent. Carnival, the world's largest cruise company, reversed early losses, rising 0.7 percent after it posted higher quarterly earnings.