Euro zone fears push shares near two-month lows

LONDON Wed Nov 14, 2012 5:49pm GMT

The outside of the London Stock Exchange building is seen in the City of London, March 7, 2005. EUTERS/Toby Melville

The outside of the London Stock Exchange building is seen in the City of London, March 7, 2005. EUTERS/Toby Melville

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LONDON (Reuters) - UK shares fell on Wednesday, testing a two-month low but failing to break a main support level as growth fears in Europe led stocks that are vulnerable to a downturn in economic activity lower.

The FTSE 100 index was down 1.1 percent at 5,722.01 points at the close, having gained 0.3 percent in the previous session after a late rally when the U.S. market opened.

Although U.S. stocks opened higher again, it was not enough to lift UK shares as investors focused squarely on Europe.

"The rally late in the day yesterday was only to do with the U.S. rallying. We started off better today on Cisco's numbers but that was not good enough to hold it," said Andy Ash, head of sales at Monument Securities.

"There's a lack of good news, and I think people's attention is focusing on Europe, whereas previously they'd been concentrating on the fiscal cliff and the U.S. election, and they're suddenly realising nothing has been sorted out here at all. I think it is Europe which is beginning to rattle people again."

A co-ordinated general strike on the Iberian peninsula has returned the euro zone and its challenges to centre-stage just as data showed the recessions in Greece and Portugal intensifying.

The euro zone remains a threat to the UK economy, according to Bank of England Governor Mervyn King, who said Britain faced the "rather unappealing combination of a subdued recovery with inflation ... above target".

The energy and materials sectors, which include oil, gas and mining companies, usual considered 'cyclical', combined to knock more than 30 points off the FTSE 100.

Evraz was the biggest faller, losing 7 percent, followed by another resources company, Eurasian, which lost 5.1 percent. Eurasian is the worst performing FTSE 100 stock this year, down around 57 percent, Thomson Reuters data showed, with its latest results pointing to pressure from weaker markets and rising costs.

Evraz follows on the year-to-date list, down 42 percent, with Kazakhmys, another miner, down around 28 percent.

The fall saw the index approach two-month lows around 5,710, which triggered rebounds twice in the previous three sessions.

Wednesday also saw a late rally from about 1600 GMT, but it was erased in late trading, leaving the index to close below its 200-day moving average for the first time since early August.

Although the market failed to break downwards through 5,710, confidence it will bounce off the support may be misplaced and a cautious outlook more justified, said one analyst.

"In a bull market, once a support level has been successfully tested, one would normally expect to see a bounce of reasonable proportions," said Bill McNamara, technical analyst at Charles Stanley.

"What I've been noticing with the price action for the FTSE over the last few sessions is that although you get this weakness in the morning and then a rally late on, it hasn't been followed by a meaningful surge, and hasn't even been able to get back up through 5,800, which I find quite bearish actually."

However, McNamara said a downward move would not be confirmed unless the index managed an even lower close.

"For market participants to accept the fact that the FTSE is breaking down, (it is) going to have to close below 5,700, and in a clear-cut way."

(Additional reporting by Rosalba O'Brien and Simon Jessop; Editing by Catherine Evans)

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