FTSE falls as Merkel comments spook investors

Miners and banks retreated as Britain's FTSE 100 fell on Tuesday after comments from the German Chancellor led to concerns over how far European leaders would go to solve the region's debt crisis. Chancellor Angela Merkel, said Germany opposes a phrase in a draft conclusion for Wednesday's EU summit that calls for the European Central Bank to continue buying bonds in the secondary market.
"The job facing European leaders is no small one and can be likened to climbing Everest without crampons," Angus Campbell, head of sales, Capital Spreads, said: "In other words a near impossible task to re-capitalise Europe's banks and prevent a default situation within the sort of timescale that is rumoured will be announced tomorrow."
Adding to the downbeat sentiment was news that a meeting of European Union finance ministers this week was cancelled also weighed on sentiment, but analysts noted the meeting is not the EU summit, which is still on. The UK's benchmark index fell 22.52 points, or 0.4 percent to 5,525.54, having closed at a 2-1/2 month high on Monday, tracking losses across Europe and in the United States .
A London-based trader said that, should an agreement be reached, the market could rally up by a further 300 points, with most gains already built in to the market. If an agreement fell short of expectations the market could retreat 10 percent, the trader added.
Further eroding investor confidence, US consumer confidence unexpectedly dropped in October to its lowest level in two-and-a-half years, again raising concerns over the health of the world's biggest economy. That led to profit taking in riskier assets such as mining and banking stocks, which have had a minor recovery over the past month as the market has moved higher.
Glencore fell 2.6 percent as analysts at Jefferies said the outperformance of the commodities trader shares has improved the economics of a bid for miner Xstrata XTA.L and means a deal could be "win-win". Banks took more than 7 points off the index, while real estate investment trusts Hammerson and British Land shed 4.2 percent each.
"It's the correlation to the banks," said a London-based trader at a top investment bank as to the reason for the falls in real estate investment trusts. "Everytime the banks get smacked, so do they. They have outperformed the financial index so I think people just getting out."
British consumer goods group Reckitt Benckiser shed 3.4 percent after warning of slower growth in the last three months of 2011. European companies have reported more earnings misses than beats so far this quarter, data from Thomson Reuters StarMine shows, though the reporting season is still in its early stage.
Of the 33 European companies that have reported third-quarter results, 58 percent of them come in below market expectations. The remaining 42 percent either beat or met estimates. Meanwhile, among financials blue chip interdealer broker ICAP and its mid cap peer Tullet Prebon fell up to 3.8 percent, after UBS cut their respective ratings to "sell" and reduced its earnings forecasts on the firms on worries over the their outlook.
Preventing the market from falling further was the performance of heavy integrated oil stocks BP and BG Group. BP gained 4.4 percent as the oil major said it had turned the corner in its recovery from the Gulf of Mexico oil spill and its output fall had bottomed out.
Concerns of future litigation continued to linger over BP as sources said the management board of Anglo-Russian oil firm TNK-BP Ltd had asked its board of directors to sue shareholder BP BP.L for billions of dollars in damages over BP's failed alliance with Rosneft. BG Group was the top performer, up 3.8 percent, as it beat third-quarter expectations boosted by a strong performance in its LNG business. Royal Dutch Shell is due to report results on Thursday.
Weir added 1.5 percent as Panmure Gordon raised its recommendation on the engineer to "buy" from "hold" in a bullish sector note. "The toast looks set to land buttered side up and accordingly we raise the sector stance to positive from neutral with an implied total return of 27 percent over 12 months," Panmure Gordon said in a note. ARM climbed 2.5 percent, turning around earlier losses, after it beat third-quarter expectations.