Miners lead FTSE drop as EU talks come into focus
LONDON (Reuters) - Miners left the FTSE 100 nursing sharp losses on Wednesday after BHP Billiton's results offered a bleak outlook for the sector, while other cyclical stocks were weaker as Greek and European officials met on the euro zone debt crisis.
London's blue chip index was down 83.32 points, or 1.4 percent, at 5,774.20.
Cyclical stocks such as miners, banks and oils bore the brunt of the sell-off as Greek Prime Minister Antonis Samaras began a round of talks with senior euro zone politicians in which he is expected to broach the idea of giving Greece more time to implement budget cuts.
"We have an overbought market in very thin volumes and with Greece coming back to the fore, given the country's previous track record, there is every reason to be nervous," said Dan Reed, trader at HB Markets.
Miners accounted for nearly 20 percent of the FTSE 100's decline with growth concerns a weight on the shares after BHP Billiton fell 1.7 percent after announcing no major projects would be approved up to June 2013 as it battles rising costs and an economic slowdown in China, hastened by Europe's debt crisis.
Some 88 percent of mining firms missed second quarter earnings expectations with earnings shrinking year-on-year about 47 percent, Thomson Reuters Starmine data showed.
Meanwhile price-to-earnings in the sector have re-rated to around 11 times as miners' shares have risen nearly 14 percent since early June, recovering from a 20 percent fall from mid-March highs on expectations that central banks in China and elsewhere will act to boost economic growth.
"Cyclicals have had a run-up in their share price coupled with weak earnings that has lifted their PEs and left a bias on the short side. Some of the stocks are pushing top levels and hitting resistance, I think there's every reason for the market to turn," HB's Reed said.
Kazakh miner Kazakhmys was the top faller, down 4.2 percent ahead of first-half results on Thursday, and along with Anglo American had its recommendation cut by JP Morgan to "underweight" from "neutral".
Anglo American was down 3.7 percent.
JP Morgan said with earnings under pressure and macro uncertainty abounding, the sector is increasingly turning into a relative call and recommended Rio Tinto as its top pick and upgraded Antofagasta to "overweight" from "neutral" and ENRC to "neutral" from "underweight".
The same bank also cut its rating on drug maker GlaxoSmithKline to "underweight" from "neutral" on earnings worries, while Deutsche Bank cut its rating for Europe's biggest DIY retailer Kingfisher to "hold" from "buy" for the same reason.
Glaxo fell 1.6 percent, while Kingfisher shed 3.0 percent.
Royal Bank of Scotland shed 0.8 percent after U.S. authorities said they are investigating RBS and Germany's Commerzbank over possible breaches of sanctions on Iran.
Shares in peer Standard Chartered are 10 percent below the level they traded at when news of a U.S. investigation over its ties with Iran broke. The bank has agreed a $340 million settlement with New York's financial regulator.
The main riser on the index was a stock of a defensive persuasion. Utility company SSE was up 1.2 percent as it said it will raise household gas and electricity prices by nine percent on average from October 15.
The gain, albeit minor, helped to keep the FTSE around near-term support levels.
"We still have a big support level at 5,795 though, and we're in no hurry to put on short trades unless this level gives," Technical trading company FuturesTechs said in a note.
(Editing by Stephen Nisbet)
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