LONDON (Reuters) - Britain’s top shares fell on Wednesday as investors took profits after the previous session’s sharp gains on concern the U.S. central bank might soon scale back its bond purchase programme that has bolstered equities.
The FTSE 100 closed down 134.84 points, or 2 percent, at 6,627.17, having gained 1.6 percent on Tuesday on pledges of continued monetary stimulus from major central banks, though is still up more than 3 percent this month.
Analysts said the index, in its twelfth consecutive monthly rise, was ripe for a sell-off.
“After a very strong performance yesterday the FTSE is not able to hold those gains today and is technically very vulnerable,” said Lex van Dam, hedge fund manager at Hampstead Capital, which manages around $500 million in assets.
With no major UK company news or economic data for investors to mull over on Wednesday, the FTSE 100 index was a sea of red, led lower by the pharmaceutical sector, among the best performers in the rally this year.
The sector, trading on a 12-month forward price/earnings ratio of 14.8 times, is one of the most expensive of the STOXX 600 indexes.
While officials from the Bank of Japan and the European Central Bank have reiterated that they will keep policies designed to foster growth in place, strong U.S. economic data on Tuesday reignited concerns about the Federal Reserve’s plans.
The UK equity market fell sharply late last week after Fed Chairman Ben Bernanke said the U.S. central bank could consider scaling back its bond-buying operations at one of its next few meetings if the U.S. economy looked set to maintain momentum.
After the FTSE 100 closed last week 110 points from its record close of 6,950.60 set in late 1999, some analysts said bouts of volatility could offer attractive entry points for investors.
“I still think it’s buy on dips, but I certainly don’t think it’s the one-way bet that people seem to think that it is,” Michael Hewson, analyst at CMC Markets, said.
Stocks trading without the attraction of their latest dividend, namely Marks & Spencer and AMEC, pushed down the index to the tune of 0.97 points.
Reporting by Tricia Wright; editing by Ron Askew