Banking and mining stocks weighed on Britain's top share index on Wednesday as concerns over the global economic recovery resurfaced, while sentiment among retailers was dented after some disappointing updates. The FTSE 100 closed down 79.73 points, or 1.3 percent lower at 5,976.70, ebbing away from Tuesday's fresh 31-month high.
"The market moved a long way ahead of the last quarter and it deserves a bit of a pull back," Paul Kavanagh, a partner at Killik & Co, said. Kavanagh said there was still appetite to get involved in this market with short term investors enjoying the fluctuations, but longer term investors are lingering on the sidelines waiting to get involved lower down than 6,000.
Optimism over corporate earnings took a knock after US banking giant Goldman Sachs posted a decline in quarterly profit, which followed Citigroup missing estimates on Tuesday. UK Banks fell on talk out of Germany, which has been denied, that Greece's debt may have to be restructured, traders said. Barclays fell 3.8 percent.
London-listed miners such as Lonmin, down 3.2 percent, were lower along with metals after economic data from the United States and ahead of a raft of key Chinese economic data due to be released early on Thursday. Groundbreaking on new US home construction fell more than expected in December to its lowest in over a year, suggesting the battered housing sector remains a major roadblock to economic recovery.
"There's a bit of a dance going on, the indexes go up and hit new highs and then pull back as nervousness creeps in," said Karen Olney, head of thematic strategy at UBS. Retailers such as Marks & Spencer, Next and Morrison Supermarkets fell as much as 2.3 percent after investors' confidence was dented in the sector following updates from Kesa and HMV.
Europe's third largest electricals retailer, FTSE 250-listed Kesa, shed 9.8 percent after warning on full-year profits, while small cap HMV slid 2.9 percent on worries over its future as credit insurers reduced the cover they are prepared to give to suppliers of the music and book retailer. Morrison Supermarkets was also weighed on by a Morgan Stanley downgrade to "underweight".
Imperial Tobacco fell 5 percent after going ex-dividend. On the upside, publisher Pearson was the top gainer, rising 4.5 percent after raising its profit forecast again. GlaxoSmithKline and Essar rose 0.8 and 0.9 percent respectively, as bargain hunters moved in following declines in the previous session. On the second line, bookmaker William Hill added 7 percent and UK pubs operator JD Wetherspoon climbed 5.2 percent after both firms posted bullish updates.
William Hill was also aided by some M&A talk as Evolution Securities said: "We would be prepared to wager that private equity interest may emerge". Tate & Lyle gained 4.9 percent with traders citing talk of bid interest, with US agricultural business Cargill cited as a possible suitor.