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2 months ago
UK mid-caps set for biggest one-day drop this year as dark skies gather
June 15, 2017 / 11:45 AM / 2 months ago

UK mid-caps set for biggest one-day drop this year as dark skies gather

* FTSE 100 down 1.2 pct, FTSE 250 down 2 pct

* DFS dives after profit warning

* Next's rating cut by Credit Suisse

* Mining and energy stocks also weigh (Adds details, updates prices)

By Kit Rees

LONDON, June 15 (Reuters) - British mid-caps were poised for their worst one-day drop in nearly a year on Thursday as a sharp slowdown in British retail sales last month offered the latest sign of darkening clouds over companies exposed to the domestic economy.

Struggling retailers, weak commodities stocks and ex-dividends also sent the blue-chip FTSE 100 index to its lowest level in a month, down 1.2 percent at 7,386.78 points by 1123 GMT.

The mid-cap index fell 2 percent.

"If one of the indices is going to find things tougher, it's likely to be the (FTSE) 250 rather than the 100," said Mike van Dulken, head of research at Accendo Markets.

The slide in UK stocks worsened after the Bank of England said that its Monetary Policy Committee had come the closest to voting for an interest rate rise since 2007, with three of its policymakers backing an increase.

The session was proving especially tricky for British retailers, with furniture seller DFS plummeting by more than 21 percent after a profit warning, blaming a weaker trading environment. Its shares were set for their worst day since listing.

Shares in mid-cap peer Howden Joinery nursed a 6.8 percent loss, while smaller ScS tumbled 8.3 percent. The FTSE 350 general retailers index was down 3.4 percent.

"DFS believes that (like-for-like) sales could recover. However, we take a more cautious view given rising inflation and Brexit uncertainty," Jefferies analysts said in a note, downgrading DFS to "hold".

A sharp fall in retail sales in May showed that British retailers are facing a tough time as a jump in inflation and low wage growth puts pressure on consumers, with a hung parliament after the UK general election adding to political uncertainty.

Weakness in retail was also evidenced in the United States in the previous session, when figures showed that U.S. consumer prices fell unexpectedly in May.

Aside from falls in Persimmon and other stocks trading ex-dividend, shares in clothes retailer Next slid by 5 percent after Credit Suisse cut its rating to "underperform", pointing to weak pricing across Europe for the wider sector.

"With earnings, margins and cash conversion continuing to fall, we regard Next as a value trap," Credit Suisse analysts said in a note.

Falls in mining companies also weighed, with Anglo American , BHP Billiton and Glencore all weaker as the price of copper fell, set back by strength in the dollar after the U.S. Federal Reserve raised interest rates.

Likewise, oil and gas stocks BP and Royal Dutch Shell retreated as crude oil prices hit a six-week low.

Only three stocks were in positive territory among the blue chips, with emerging markets-exposed lender HSBC, RBS and LSE Group holding on to marginal gains. (Editing by Pritha Sarkar and David Goodman)

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