Mining stocks weigh down FTSE

LONDON Wed Jan 16, 2013 5:55pm GMT

1 of 3. The London Stock Exchange is seen during ther morning rush hour in the City of London April 11, 2011.

Credit: Reuters/Toby Melville

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LONDON (Reuters) - Weak mining stocks tipped the FTSE 100 into negative territory on Wednesday, led lower by Anglo American, which was knocked by worker unrest at its platinum mines.

Anglo American fell 3.1 percent, underperforming a 1.4 percent decline in the mining sector.

The company laid out a blueprint for its Anglo American Platinum arm on Monday, but the plan to close two South African mines and sell one could mean 14,000 jobs losses and has been met with resistance from the government and unions there.

Anglo's Kumba Iron Ore unit has separately warned its 2012 profit is likely to have fallen by a third, hit by lower prices and an illegal strike. Societe Generale cut its rating for the stock to "sell" from "hold".

Also weighing on the miners, which tend to be out of favour in harsh economic times, was caution over the health of the global economy, thrown into focus by Tuesday's weak German GDP figures, and mounting worries about a looming political fight in Washington over lifting the federal government's debt limit.

Investors in the sector will be focused on economic data out of top metals consumer China on Friday, including fourth-quarter GDP and December industrial output.

The FTSE 100 fell 13.33 points, or 0.2 percent, to 6,103.98, but was well off a session low of 6,076.12. Fourth-quarter earnings from U.S. banks JPMorgan and Goldman Sachs, both of which beat expectations, aided sentiment.

"The U.S. fourth quarter reporting season has come to life today ... However, with an unrelated series of events rattling an assortment of high-profile corporates across the board, sentiment in the equity market remains slightly bearish," GFT Global technical analyst Fawad Razaqzada said.

"Perhaps the market is just waiting for another set of important economic pointers from the likes of China and the U.S. before making its mind up in terms of direction. On the technical front, the FTSE needs to break 6,135/40 (around the January 14 high) before it could embark on another strong rally."

Drug stocks helped limit the FTSE 100's losses, led by a 2.4 percent gain in Shire as traders cited rehashed talk of a potential bid from pharmaceutical peer AstraZeneca, which fell 0.2 percent.

AstraZeneca said it did not comment on market rumours, while Shire was unavailable for comment.

A pick-up in M&A activity, as companies spend cash saved during the worst years of the global financial crisis, should boost European equities this year, said Fidelity Worldwide Investment pan-European equities fund manager Paras Anand.

"I expect one potential spur to share prices in the coming year could be the impact of merger and acquisition activity," he wrote in a research note.

"While many companies may elect to buy back their own shares, more will look at compounding their advantages in the context of a moribund demand environment, and to that end the 'buy vs. build' options will be increasingly weighed."

"Many European businesses look attractive in this context and, to the extent that deals are done, it is supportive to broader market valuation," Anand added.

(Additional reporting by Jon Hopkins and Sudip Kar-Gupta; Editing by Catherine Evans)

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