The FTSE 100 dropped 38 points to 6,078 as concerns about the UK’s credit rating and weak global economic growth prompted investors to take profits after the New Year rally.
The 0.6% fall in the FTSE 100 followed sharp falls in Japan and Asia overnight, prompted by a recovery in the yen and nervousness ahead of Chinese economic data on Friday.
The Nikkei 225 shed 2.6%, its biggest daily fall in eight months, as the yen bounced back against the dollar for a second day, although it is currently back 0.7% down at 88 yen to the dollar. Falls in the currency have helped Japan’s beleaguered stock market rally 24% in the past two months.
FTSE below 6,100 'resistance' point
The decline in the UK’s leading market index is a significant break through the 6,100 market over which it has hovered in recent days. Neverthless, the FTSE 100 has chalked up a 3% gain since the start of the year as investors have 'rotated' from bonds to shares.
The pound fell 0.2% to $1.6033 against the dollar after rating agency Fitch warned it could strip the UK of its AAA rating if the Budget in March shows debt levels continuing to rise.
The euro also weakened slightly against the dollar, at $1.3313, after Jean-Claude Juncker, chairman of the eurozone finance ministers’ group, told Reuters the single currency was now ‘dangerously high’, although it has fallen from $1.2235 against the US currency in the past six months.
The Euronext 300 index dipped more than five points or 0.5% to 1,154 as data showed demand for new cars in Europe fell to the lowest level in 17 years. This follows discouraging figures yesterday showing Germany’s economy shrank at the fastest pace in nearly three years at the end of 2012.
World Bank cuts global growth forecast
Concerns about the prospects for global growth were stoked by the World Bank cutting its forecast for the world economy to grow just 2.4% this year, down from the 3% it predicted last summer.
The futures market pointed to the US market falling 0.3% when Wall Street opens this afternoon.
Imperial Tobacco (IMT.L) was the biggest faller in London, sliding £1.18 or 4.75% to £23.65, after the defensive stalwart traded ex dividend.
Banks look for PPI deal
Bank shares tumbled after The Times reported their UK trade body was in talks with the Financial Services Authority over imposing a summer deadline for customer complaints around PPI (payment protection insurance) mis-selling.
Banks like Lloyds (LLOY.L), the biggest FTSE 100 faller, down 3.8% or 2p at 52.3p, are struggling with a huge backlog of PPI claims. They are said by the paper to be willing to pay for an advertising campaign to publicise the deadline if it meant they could draw a line under the scandal. However, the move is risky as it could cause the PPI compensation bill to spike above its current £12 billion level.
Meanwhile Experian (EXPN.L) continued its recent rally with a 9.6p or 1% gain to £10.47. A good third quarter trading statement based on strong growth in Latin America whetted investors' appetite for the credit information firm's full-year results.
Investors took profits in Jupiter Fund Management (JUP.L), sending shares in the investment group down nearly 4% or 13p to 312p. The stock had rallied ahead of today's trading statement which showed encouraging inflows into its main funds. The shares are up 12% year to date.
Horse burger publicity hits Tesco
Tesco (TSCO.L) dropped 3.8p or 1.1% after Ireland's Food Safety Authority found evidence of horse meat in the supermarket's burgers.
Meanwhile Anglo American (AAL.L) slid 78p or 4% to £18.83 as workers at three of its platinum mines went on an unofficial strike over the group’s plans to scale back and cut 14,000 jobs.
French Connection losses widen
Burberry (BRBY.L) was initially the fastest rising blue chip for the second day, up 19p or 1.4% to £14.05, after yesterday’s well received trading statement. However, shares in the luxury fashion group have subsided to a 5p gain at £13.91.
French Connection (FCCN.L) fell 2.7p of 9% to nearly 26.8p as the struggling fashion retailer warned that a poor performance over Christmas meant it expected to make a full-year loss of £7.5 million, more than analysts expected. The shares have slumped by a third in the past 12 months, valuing the business at just £26 million.
Thorntons (THT.L), the chocolate store chain recently tipped by stockbroker Panmure, sagged 3.6p or nearly 8% to 41.8p, halving the stocks's gains for the year so far, as investors took profits after its second quarter trading statement.
N Brown (BWNG.L), one of retailing's hot stocks last year with a 59% 12-month gain, slipped 9.6p or 2.6% to 361.8p after the home shopping group expected to meet its full-year forecasts after a strong first half.
JD Wetherspoon (JDW.L) fell 13.5p or 2.5% to 518.5p after the budget pub operator said operating margins had slipped in the first half but that total sales had risen 11.3%.