FTSE falls

Britain's top share index retreated from four-month highs on Wednesday with some market nervousness ahead of the Bank of England's growth and inflation forecasts, with AstraZeneca leading pharmaceutical companies down after a drug flop.

AstraZeneca fell 2.4 percent after an experimental drug for severe sepsis from the company and BTG failed to help patients in a mid-stage clinical trial. Its development will now be halted, said BTG, which fell 5.3 percent.

At 10:37 SA time, the FTSE 100 index was down 24.46 points, or 0.4 percent, at 5,816.80, after gaining 0.6 in the previous session to its highest closing since early April.

Analysts said some caution prevailed ahead of the UK inflation report due at 11:30 SA time, with the central bank seen slashing its growth and inflation forecasts for 2012 and beyond.

“The market is nervous ahead of the report,” Henk Potts, equity strategist at Barclays Wealth, said. “In the short term, a significant amount of uncertainty is still there. While you have got to maintain your exposure to equity markets, you also need to insure against downside risks as well.”

“The UK economy finds itself in a pretty difficult position, with conditions still very fragile. You have got austerity measures, weak domestic consumption and a weak trading environment. A combination of that would probably put pressure on the Bank of England to act.”

The fragility of the economy was further highlighted by a survey by the Recruitment and Employment Confederation that showed the number of people placed in permanent jobs in Britain fell for the second straight month in July.

The market has started speculating whether the Bank of England will announce extra bond purchases before it is done with the current round in November, especially as inflation has fallen faster than expected.

Potts said he believed that from a longer-term perspective, fundamentals still looked very favourable, a view echoed by Gerard Lane, analyst at Shore Capital.

“We would highlight that valuation and sentiment remains supportive for equities,” Lane said in a note. “Whilst EPS (earnings per share) estimates are being cut, if the lower oil price observed recently triggers an improvement in the economy, then we would suggest that the pace of cuts should ease.”

FOCUS ON EARNINGS

Investors kept a close eye on the second quarter earnings season. According to Thomson Reuters StarMine data, out of 84 percent FTSE 100 companies that have reported results so far, 56 have missed analysts' forecasts, while 44 percent have met or beaten expectations.

Global miner Rio Tinto was up 2.5 percent. It posted a 34 percent drop in first-half profit, but results came in at the better end of expectations. Rio said it was sticking to its $16 billion spending plans for the year.

Banks were broadly higher, helped by Standard Chartered , which rose 6 percent to pare some of its losses. The bank slipped 16.4 percent on Tuesday after New York's top bank regulator accused the UK bank of hiding $250 billion in transactions tied to Iran, in violation of US law.

Trading volume in Standard Chartered stood at around twice its 90-day daily average after just over an hour of trade. Standard Chartered went ex-dividend on Wednesday, limiting some of its gains. - Reuters