FTSE slips from 32-month peak

Britain's leading share index slipped on Friday from a 32-month high hit in the previous session, as further monetary tightening in China dampened miners and left defensive stocks in demand. The commodity-heavy FTSE 100 index closed down 0.1 percent at 6,082.99 points, though it was still up 0.3 percent for the week - the third straight weekly gain. Volumes were about 98 percent of the FTSE 100's 90-day daily average.
"Just a bit of consolidation is probably what we are going to see. Consolidation could incorporate a 5 percent pull back quite easily," Philip Lawlor, investment strategist at Smith & Williamson, said. "We would like to have some ammunition ready to take advantage of that."
The UK benchmark has risen 3.1 percent this year, but it underperforms a 5.4-percent rise in the pan-European STOXX Europe 600 as mining stocks have been suffering on concerns over policy tightening in top consumer China. Beijing on Friday raised banks' required reserves by 50 basis points, showing no let-up in a campaign to combat inflation.
Miners fell 1.7 percent, with Rio Tinto and BHP Billiton down 2.3 and 2.2 percent, respectively. Anglo American dropped 2.1 percent, with traders citing disappointment over its dividend and the outcome of the attempted sale of its unwanted Tarmac UK building materials business.
African Barrick Gold, however, advanced 3.8 percent, with traders citing market chatter about bid interest. The company declined to comment. The FTSE 100 volatility index was steady, but is down 13.8 percent so far this year. The lower the volatility index, the higher is the risk appetite.
"We are still in a midst of a rally which will continue. It's just a minor correction that we are seeing at the moment," a trader said. In terms of valuations, the UK index has a 12-month forward price-to-earnings of 10.5 times versus a 10-year average of 14.5 and STOXX Europe 600's 11.1, Thomson Reuters Datastream showed.
But FTSE 100 companies are expected to post a 20.8 percent average increase in earnings this year, much higher than STOXX Europe 600 companies' 15.1 percent rise. Banks also came under pressure on Friday, down 1.1 percent, though they were up 2.3 percent this week after solid results in the sector, including from Barclays. UK banks have risen 10.3 percent since the start of the year.
Retailers were firmer in general, with Kingfisher up 2.7 percent and Next up 1.9 percent, after British retail sales rebounded sharply in January after heavy snow caused the biggest December month-on-month fall in sales volumes on record.
Defensive stocks were also in demand, with Imperial Tobacco, British American Tobacco and Unilever up between 1 and 3.5 percent. Credit Suisse's private bank, however, said in a note that it had shifted back to a more cyclical bias in its strategy, moving energy and chemicals to "overweight" and downgrading food producers, telecoms and utilities to "underweight". "Any dip in the equity market would represent a good opportunity to take a more concerted pro-cyclicals stance and we are cautiously watching developments here," it said.