Britain's top shares fell on Friday, extending the previous session's drop as renewed global growth worries reverberated around global markets, with miners and energy stocks under the most pressure on fears over the demand outlook for commodities.
At 10:11 SA time, the FTSE index was down 55.39 points, or 1.0 percent, at 5,510.97, having briefly dropped below the psychologically important 5,500 level early on.
The UK blue chip index shed 1 percent on Thursday, snapping a four-session winning streak which had seen around 2.8 percent added to the index on hopes for central bank stimulus. Those hopes were dashed by the US Federal Reserve's failure to sanction after further quantitative easing moves at its latest policy meeting.
“With the Fed looking like less of a pushover than traders had hoped, global growth teetering on its apex and Europe still stuck in its debt quagmire, markets are likely to hold steady with their risk-off mood,” said Jonathan Sudaria, dealer at London Capital Group.
Miners fell back as the copper price slipped to two-week lows, and headed for its seventh weekly loss in eight, after bleak data from top consumers United States and China on Thursday muddied the outlook for demand.
Falls by energy stocks were the biggest drag on blue chip sentiment, with Brent crude hovering below $90 on Friday, also headed for a weekly loss.
Banks were only modestly under pressure after Moody's lowered the credit ratings of 15 of the world's biggest lenders on Thursday by one to three notches to reflect the risk of losses they face from volatile capital markets, as the move was well-flagged.
“We believe markets will digest these downgrades comfortably. The actions have been well flagged, so investors, and the banks themselves, should not have been caught off guard,” Daiwa Capital Markets said in a note.
“With the conclusion of Moody's long-running rating reviews at least one uncertainty has been removed. But the next round of downgrades may be just around the corner given the myriad challenges still weighing on the sector,” Daiwa added.
Royal Bank of Scotland was the worst off in the sector, shedding 0.6 percent. RBS is set to receive up to 300 million pounds less than it expected for a package of branches it is selling to Santander UK because the business has failed to hit a number of targets outlined in the deal, the Financial Times said.
Barclays, HSBC, and Standard Chartered , however, all outperformed the market fall, nudging 0.2 percent to 0.5 percent lower, while Lloyds Banking Group bounced 0.5 percent higher, with the sector having fallen on Thursday.
There were only a handful of other blue chip gainers early on, all mainly wanted for their defensive characteristics.
Household products giant Unilever added 0.3 percent to a rebound in the previous session, having been hit by a warning from European peer Danone earlier in the week.
No important macroeconomic data will be released in Britain on Friday, but after this week's drop in British inflation numbers, which could strengthen the Bank of England's hand on further stimulus measures, some strategists looked positively on the UK economic outlook.
“We expect equity prices to respond positively to a gradually improving economic outlook. On less than 10 times forecast 2013 earnings, UK equity valuations continue to discount a much harsher outlook for corporate profits than we believe is likely to materialise,” Darren Winder, equity strategist at Oriel Securities, said in a note.
“As risk premiums start to return to more normal levels, helped in part by policy actions, equity prices will strengthen accordingly,” Winder added. - Reuters