Bernanke helps push FTSE to 2-1/2 week low

Britain's top shares ended lower on Wednesday, in spite of getting initial support from the European Central Bank making cheap loans available to lenders, after bearish comments from US Federal Reserve Chairman Ben Bernanke hurt sentiment. The UK benchmark suffered a late sell-off, closing down 56.40 points, or 1 percent, at 5,871.51, its lowest close since February 10 and well off the intra-session high of 5,944.75.
Traders pointed to Bernanke's remarks, in which he indicated concern over mixed signals from US economic data, as the catalyst for the falls. Mining stocks, whose share prices are closely allied to the fortunes of the global economy, took a pounding and knocked 21 points off the FTSE 100 index.
Exacerbating these falls, heavyweights BHP Billiton and Rio Tinto both traded ex-dividend on Wednesday. Banks ended in negative territory, having earlier notched solid gains after the ECB allotted 530 billion euros ($709 billion) in its second offering of cheap three-year funds, slightly above forecasts.
While UBS strategist Nick Nelson sees the second ECB long-term refinancing operation (LTRO) as supportive, he reckons it will be tough for European equities to push much higher in the short term, even though he does not consider them expensive. "You need to see more improvements and good news on the macro, a big acceleration in M&A or increased confidence from companies," he said. He highlighted that it is becoming difficult for economic numbers to top expectations, which have been lifted over recent months by economists encouraged by more positive releases.
Expectations have been running high that the ECB funds will be used by banks to lend to businesses, in order to stimulate economic growth, but analysts see room for disappointment. "I think you've still got, in many countries across Europe, tightening credit conditions, so the LTRO has provided liquidity, but it's not necessarily the case you're going to see an expansion in credit directly because of this," Nelson said.
"I think it's more staving off a very bad credit crunch, staving off a disaster, rather than promoting strong growth." Michael Hewson, market analyst at CMC Markets, held a similar view: "You can pump as much liquidity into the system as you like. The problem isn't liquidity, the problem is solvency." "Until you deal with that issue, then banks are going to deleverage - they're not going to lend."
Earnings news got a mixed responses from investors. ITV was the biggest FTSE 100 riser, up 6.8 percent, after the free-to-air broadcaster's full-year earnings easily beat expectations, helped by growth in its own productions. Numis upgraded ITV, one of the most heavily traded stocks in London on Wednesday, to "buy" from "add" after "very strong" results from the home of hit costume drama Downton Abbey.
British Airways owner IAG's shares climbed 0.6 percent after it reported a rise in full-year profit, helped by higher-than-expected savings from the BA-Iberia merger, but warned cost pressures would hit profit in 2012. Engineer Weir Group, meanwhile, shed 4.5 percent, the second-heaviest blue chip faller, after full-year numbers.
The company's results beat forecasts with a 34 percent surge in profit. Broker Panmure Gordon, however, pointed out a weaker margin picture could mean there will be little change to 2012 estimates. The heaviest faller on the index was Essar Energy, down 7.5 percent, as Credit Suisse cut its rating to "neutral" from "outperform" on short-term financing concerns.