Vodafone weighs on UK stocks

Britain's top shares index was a touch lower on Tuesday after sharp falls in the previous session with volumes low.

At 13:02 SA time, the FTSE 100 index was down 7.05 points, or 0.1 percent at 5,526.80 points, having slumped 2.1 percent on Monday.

Investors have been concerned about the ongoing euro zone crisis, which is now clearly focused on Spain.

“After yesterday's volatility it may end up being a day of watching and waiting at these levels to see if any further proposed solutions are forthcoming - or if indeed there are more shocks from the troubled European countries,” said David Jones, Chief Market Strategist, IG Index.

Trading volumes were very thin, at 20 percent of the 90 day daily average by midday.

Financial stocks, which are the most exposed to potential losses in debt-ridden euro zone countries such as Spain and Greece, were among the worst-performing stocks, with insurer Aviva topping the blue chip loser board, off 2.1 percent, while Lloyds Banking Group shed 1.0 percent.

“In general I am still cautious on banks and we are underweight in the fund,” said Richard Plackett, manager of the BlackRock UK Special Situations Fund.

Miners, which had earlier posted a rally after data showed China's flash factory purchasing managers index had risen in July to its highest level since February, soon saw that enthusiasm fade, with the sector hit by demands fears due to the weak economic backdrop caused by the European economic crisis.

The gloomy backdrop was illustrated by a weaker-than-expected German purchasing managers' survey on Tuesday, which showed private sector activity in Europe's largest country contracting for a third straight month.

And there was an even worse picture for the overall euro zone's private sector, which shrank for a sixth month in July as manufacturing output nosedived, added to the likelihood that the bloc will slump back into recession.

US flash Markit Manufacturing PMI data for July will be released at 14:58 SA time, with economists in a Reuters survey expecting a reading of 52.0 versus 52.5 in the June.

Ahead of that data, US stock index futures pointed to a modestly lower open on Wall Street on Tuesday after sharp falls in the previous session.

VODAFONE DRAGS

Market heavyweight Vodafone was the biggest drag on the blue chips, down 1.2 percent and knocking 4 points off the FTSE 100 index, with Espirito Santo Investment Bank trimming its fair value for the mobile telecoms operator to 210 pence from 230 pence following last Friday's weak first-quarter update.

“Vodafone's Q1 indicates a tough year ahead. This is consistent with our new view of mobile voice revenue, which we now see in medium/long term structural decline,” Espirito Santo said in a note, although it said there remained enough positives to support its “buy” rating on the stock.

Vodafone was weak in spite of its defensive characteristics, missing out with the main underlying strength from the market coming from non-cyclical sectors, such as drugs and food producers, with Shire up 1.3 percent, and Tate & Lyle ahead 0.5 percent.

Chemicals firm Croda International was easily the top FTSE 100 gainers, jumping 6.4 percent as the firm reported a 6 percent increase in first-half profit as the company sold more higher-margin products and strong demand in North America offset softness in Europe. - Reuters