FTSE lower

Britain's top share index fell by around midday on Friday in risk-off trade after US bank JP Morgan announced it had incurred a $2 billion loss from a failed hedging strategy, denting sentiment towards its beleaguered UK peers.

London's blue chip index was down 18.93 points, or 0.3 percent at 5,525.02, by 12:32 SA time, with the banking sector down 1.4 percent.

Barclays, which has a large exposure to US investment banking, was the worst sector performer, shedding 2.4 percent after JPMorgan stunned investors with the news that its Chief Investment Office had incurred “significant mark-to-market losses” that it said could “easily get worse”.

JP Morgan shares sank nearly 7 percent in after-hours trading and caused US stock index futures to fall sharply.

Banks' reputation among investors remains poor, with little faith in the strength of their balance sheets or ability to sustain significant profits in the long-term, leading the market to an “underweight” position in the sector, said Ewen Stewart, UK Strategist at Investec.

With European political and debt worries already hanging over the banking sector and the broader market, Stewart sees short-term volatility continuing with the FTSE 100.

He sees the index bouncing between 5,400 and 5,650 over the next three months, but still thinks the market will rally towards 6,200 at year-end as central banks step in again to support economies.

Worries over growth in China further undermined the investment case for risk assets.

Miners were the biggest drag on blue chip sentiment as copper fell after further weak data from top metals consumer China, which unveiled below-forecast April industrial output figures.

The data will put a further squeeze on margins and raise doubts over earnings, which have underperformed over the last quarter, with 60 percent of miners missing expectations, compared with a 40 percent miss for the broader market, according to Thomson Reuters Starmine data.

IAG was among the worst individual blue chip fallers, shedding 1.7 percent after the airline group, formed by the merger of British Airways and Iberia, said first-quarter losses more than doubled as higher fuel costs and weakness in Spain helped wipe out any benefits from rising revenues.

Energy stocks were in positive territory, however, rallying as Royal Dutch Shell added 0.4 percent after Qatar's sovereign wealth fund acquired a stake in the firm.

A spokeswoman for Shell confirmed that Qatar had bought a stake but declined to say how large. The Middle East Economic Survey had reported earlier that Qatar's sovereign wealth fund was in “very advanced talks” to buy 3-5 percent of the firm.

Shares in a quartet of British retail names pushed higher on Friday, bucking the weaker market trend and boosted by upgrades in rating from a number of brokers.

Marks & Spencer was a big blue chip gainer, up 2.9 percent, with the FTSE 100 index down 0.3 percent, as BofA Merrill Lynch upgraded its rating to “buy

“We think likely soft recent trading is now more priced into the stock and that M&S should benefit from a stronger events calendar and lower input cost inflation later this year,” the broker said in a note.

A broker upgrade also propelled food retailer J Sainsbury , up 1.8 percent as Citigroup upped its rating to “neutral”.

On the second line, beaten down Home Retail topped the FTSE 250 leader board, up 4.6 percent helped by a Liberim Capital upgrade, while department stores operator Debenhams gained 2.5 percent as Merrill Lynch also upped its rating to “buy”.

Broker comment also lifted UK water companies up as Deutsche hiked its targets in the sector and drugmaker Shire was boosted by an Exane upgrade. - Reuters