Commodity stocks dragged Britain's top share index lower on Wednesday, ending the FTSE 100's recent rally as disappointing US manufacturing data spoiled investors' appetite for risk. The FTSE 100 closed down 98.81 points, or 1.6 percent, at 5,984.07, with the FTSE volatility index up 11.4 percent, hitting a near five-week high.
The FTSE 100 had climbed 3.6 percent since April 18, rebounding from a sharp decline following Japan's earthquake, political unrest in the Arab world and European debt concerns. Riskier assets bore the brunt of the day's sell off. Miners tracked falling metals prices, which sagged after top commodities consumer China said it would roll out more measures to fight inflation and after the Reserve Bank of India hiked interest rates.
Antofagasta shed 9 percent after first-quarter copper production missed initial targets and it cut its full-year target for its flagship Los Pelambres mine. The miner also traded for the first time without the attraction of its interim dividend and a 100 cents special payout. Barclays, GlaxoSmithKline and Weir Group also fell after going ex-dividend.
Energy issues were weak as oil prices weakened after industry data showed US crude stocks rose sharply last week. BP shed 2 percent after it paid to settle US federal civil claims from 2006. "In the last few months we have moved more away from cyclical and into defensive positions," Simon Gergel, portfolio manager of the 93 million pound Allianz RCM UK Equity Income Fund.
Gergel cited GlaxoSmithKline, Royal Dutch Shell and Scottish & Southern Energy as examples, along with some food producers such as Unilever and Reckitt Benckiser. Broader sentiment took a further blow after an industry report revealed the pace of growth in the US services sector unexpectedly eased in April. Wall Street was lower as the UK's FTSE 100 closed.
Earlier, a survey showed British construction sector activity slowing more than expected last month. Chip designer ARM Holdings shed 7.3 percent, with traders and analysts pointing to an announcement from Intel due for later on Wednesday, which they say will highlight the competitive threat from the rival chip designer.
Mid-cap firm Imagination Technologies fell 5.8 percent as Evolution Securities cut its rating on the British chipmaker to "neutral" from "buy", advising investors to lock in profits following the departure of the firm's chief financial officer (CFO) on Tuesday. Blue chip British technology firm Smiths Group dipped 2.7 percent after it said the head of its Detection unit would step down immediately.
But it wasn't all doom and gloom as results from fashion chain Next, which rose 4.4 percent after raising guidance, boosted appetite in the sector. Analysts said Next's results boded well for sector peers, with Marks & Spencer up 3.8 percent. Technical levels suggested there was room for London's blue chips to rally again.
The index remained attractive at around 50 on the Wilder Smoothing 14-day relative-strength index, well clear of the 70 level, which would suggest the FTSE 100 is overbought. "I am quite constructive on the FTSE relative to other markets, especially as sterling is continuing to weaken," said Lex van Dam, hedge fund manager at Hampstead Capital, which has $500 million of assets under management.