Markets

Financials lead FTSE down on US debt concerns

LONDON : Britain 's top share index was lower on Monday, with banks hit by fears of a debt default by the United State
Published July 25, 2011

 LONDON: Britain's top share index was lower on Monday, with banks hit by fears of a debt default by the United States, as political stalemate prevents the government there from raising a statutory cap on borrowing.

The UK's benchmark index was down 11.05 points, or 0.2 percent, at 5,923.97 by 1151 GMT, marking the end of a four-day rise.

If Congress and the Obama administration fail to come to an agreement by Aug. 2, the United States will suffer its first ever major default.

The uncertainty is "going to be something that holds back investors", David Morrison, market strategist at GFT Global said, but he added that investors remain "sure there will be an agreement to raise the debt ceiling".

However, Morrison noted it was unlikely that such an agreement would calm long-term market sentiment, given the underlying budgetary problems in the United States.

"Raising the debt ceiling does not improve the US's situation; it makes it worse, and unless there is a serious attempt to bring down the budget deficit, a US downgrade is quite likely."

Financial stocks dominated the blue-chip fallers' list. Barclays and Lloyds Banking Group were the two biggest fallers, shedding 3.2 percent and 2.8 percent, respectively, while Royal Bank of Scotland dropped 1.3 percent.

"With there being little in the calendar in terms of economic data, investors have very little to go on other than the US?debt talk stalemate," said Joshua Raymond, chief market strategist at City Index.

"When US markets open for trading early this afternoon, we will get a better picture of how much real concern there is amongst investors."

US stock index futures pointed to a lower opening on Wall Street on Monday.

SAFE HAVEN

Investors looking for relative safety favoured the producers of precious metals, with silver and gold miner Fresnillo the FTSE 100's top riser, up 3.3 percent. Randgold Resources climbed 1.1 percent, after gold hit a record high earlier on Monday above $1,620 an ounce.

Bearish broker sentiment weighed on UK retailers, with Marks & Spencer , Dixons Retail and Halfords among Monday's biggest fallers.

Marks & Spencer shed 1.9 percent as ING repeated its "sell" rating on the high street stores group, citing the possible impact of expansion moves by employee-owned rival John Lewis.

Midcap electrical goods retailer Dixons fell 3.2 percent as UBS cut its investment rating on the stock to "neutral" on concerns over second-quarter comparatives.

And Halfords eased 4.2 percent as JPMorgan and Peel Hunt downgraded the British car parts and bicycles retailer and lowered their target prices after what JPMorgan called last week's "disappointing" first-quarter trading update.

Burberry rose 1.5 percent as UBS hiked its target price for the luxury goods group to 1,550 pence from 1,255 pence to "better reflect the top-line growth potential and attractive positioning of the business".

 

Copyright Reuters, 2011

 

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