LONDON: Britain's top equity index was pulled lower on Thursday by engine maker Rolls-Royce, and supermarket operator Sainsbury fell further after posting lower profits a day earlier.
Rolls-Royce dropped 19.6 percent to 525.7 pence, its biggest daily loss in 15 years, after issuing its fourth profit warning in just over a year. It also said it might cut its dividend because of weaker demand for spares and service for existing aero-engines.
The company's warning pushed investors towards rival BAE Systems, which gained 3.8 percent. BAE said on Thursday it would see no growth in earnings in 2015 after reducing production of Typhoon aircraft and that it would cut jobs in Britain and Australia, but its update was considered more encouraging than Rolls-Royce's.
BAE shares also rallied after sources told Reuters that it was in advanced talks to sell its U.S. manpower and services businesses to a private equity firm for more than $1 billion.
Rolls Royce shares may fall below 500 pence in the next three months, Beaufort Securities' sales trader Basil Petrides said, and the threat to its dividend was causing income funds to dump the stock.
The blue-chip FTSE 100 index was down 1.9 percent at 6,178.68 points at its close, underperforming European indexes.
Mining companies also weighed on the index. Glencore fell 7.6 percent and Anglo American, Antofagasta and BHP Billiton all lost 4.9 to 8.7 percent, as weak Chinese credit data sent copper prices tumbling on concern its economic growth was slowing.
"The underlying commodity prices that are driving down commodity-linked stocks (are) ... driven by concerns over China (and) a stronger dollar," Fawad Razaqzada, technical analyst at City Index, said.
Sainsbury also fell more than 4 percent, a day after reporting lower profits and warning of more price cuts to come.
"Cost inflation, selling deflation, and gross margins under pressure suggest on-going, structural profit declines," HSBC analysts wrote in a note.
The FTSE 100 is down nearly 6 percent since the start of 2015 and more than 13 percent below a record high reached in April after concerns about a slowdown in China, the world's second-biggest economy, knocked back global stock markets.
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