FTSE dips as risk sentiment wanes ahead of U.S. election

LONDON Mon Nov 5, 2012 4:52pm GMT

A man walks through the lobby of the London Stock Exchange August 5, 2011. REUTERS/Suzanne Plunkett

A man walks through the lobby of the London Stock Exchange August 5, 2011.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - The FTSE 100 fell on Monday as investors eased back on risky plays ahead of U.S. elections, with miners among the top fallers as they continued to suffer from the low price of copper.

At the close, the FTSE 100 was down 29.490 points, or 0.5 percent, at 5,839.06, in thin trading volumes of 70 percent of the average 90-day volume.

"The U.S. election weighs, because clearly the result is still so uncertain. People are really looking for more direction on that front before deciding whether to become more risk-tolerant or not," Ed Shing, equity strategist at Barclays, said.

Sectors that are exposed to the economic cycle and move with risk sentiment (known as "cyclicals") such as banking, mining and energy, took the most points off the FTSE.

Four of the five biggest fallers were miners, with Eurasian shedding 3.7 percent as the price of copper hit two-month lows, reaching 7,609.50 and down nearly 10 percent in the past seven weeks.

"Copper is a fairly good proxy for the whole sector and has been coming down quite a bit," said Tom Gidley-Kitchin, analyst at Charles Stanley.

HSBC shaved 6 points off the FTSE 100, the biggest loss to the index, dropping 1.2 percent despite a solid earnings update after it said it would need to set aside another $800 million to cover a potential fine from U.S. regulators for breaches in its anti-money laundering controls in Mexico.

Although HSBC's earnings saw a fall in bad debts, it also said it would take another $353 million charge for mis-selling in Britain, mainly of payment protection insurance.

In all, banks took over 10 points off the index, making it the biggest sectoral drag on blue chip shares.

"Defensive" stocks, which prosper during periods of risk aversion, did well, with the pharmaceutical sector adding the most points to the FTSE.

GlaxoSmithKline gained 1.7 percent, rebounding after shedding 3.4 percent last week after a disappointing earnings update.

GSK was the second biggest gainer on the index behind pumps manufacturer Weir Group, which gained 4.5 percent, leading the index after the company issued a solid trading update. It said it was on track to deliver full-year profit in line with expectations and with the market consensus.

Weir closed the day having traded over two and a half times their 90-day daily average volume.

TO THE WHITE HOUSE

For risk sentiment to be improved following the election, Barclays' Shing said that what mattered was not which party won the presidency but signs that it could work with Congress to ameliorate the impact of the "fiscal cliff" - about $500 billion in expiring U.S. tax cuts and automatic spending cuts set for next year which could wipe 2-3 percent off GDP next year unless Congress can compromise over lowering the budget deficit.

"What you'd like to see is to see some evidence that the fiscal cliff will be resolved, without a big drawdown in U.S. economic activity in the first quarter," Shing said.

"Whoever is the President in a sense doesn't matter as much as that. Seeing some light at the end of the tunnel in terms of reaching an agreement by the end of the year on how to minimise the hit from the fiscal cliff in the short term is going to be very much more what's going to predominate for equity markets."

U.S. President Barack Obama is slightly edging Republican challenger Mitt Romney in the key state of Ohio.

(Additional reporting by Toni Vorobyova)

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