August 3, 2011 / 8:38 AM / 8 years ago

FTSE falls to 8-month closing low

LONDON (Reuters) - The top share index fell more than two percent on Wednesday, driven lower by uncertainty over global growth, with commodity stocks heading the list of fallers.

City workers take a break outside the London Stock Exchange October 27, 2008. REUTERS/Alessia Pierdomenico

The FTSE 100 sank to its lowest closing level since end-November 2010, dropping 133.88 points, or 2.3 percent, to 5,584.51, extending its losing streak to four days.

“In a word, ‘dreadful’. We are very much in ‘risk-off’ mode when it comes to the whole equity world because I think there are increasing concerns about the growth outlook — it really is that simple,” Peter Dixon, economist at Commerzbank, said.

“We’ve got the euro zone crisis, the debt problems in the U.S., and now the growth outlook itself — it’s a toxic combination. I think investors are fleeing for safe havens as fast as they can.”

Integrated oil stocks took the most points off the index as investors fretted about demand, with U.S. crude off $1.52 at $92.27 a barrel.

The sector was also under pressure as Royal Dutch Shell, BG Group and BP went ex-dividend.

Oil explorer Cairn Energy was among the top blue-chip fallers, down 5.1 percent, after it said a well off the coast of Greenland did not find oil. Evolution Securities repeated its “reduce” rating on the stock.

The 11th-hour deal to avert a U.S. default has failed to brighten the mood. Investors have shifted their focus on to how tighter fiscal policy would impact growth in the United States, one of the main pillars of the global economy.

Commerzbank’s Dixon said they were in the process of cutting forecasts for most of the industrialised economies — “an environment that doesn’t bode well for earnings.”

Into the mix, top raw materials consumer China said its services sector grew at its slowest in three months during July as the government tightens monetary policy.

The global growth fears pressured metals prices and mining stocks. BHP Billiton was among the worst off, down 4.2 percent and also impacted by Credit Suisse cutting its rating to “neutral.”

Mexican silver miner Fresnillo, however, advanced 5.2 percent to the top of the FTSE 100 leader board, having enjoyed post-results gains on Tuesday.

Gold miner Randgold Resources, off 0.2 percent, also outperformed its peers, with gold having hit a record earlier on Wednesday as the nervousness over the economy boosted demand for safe havens.

BEARISH SIGNAL

The benchmark index has fallen 3.7 percent so far this week, on track for its worst weekly performance since early July 2010.

Phil Roberts, chief European technical strategist at Barclays Capital, said Wednesday’s close below the March and June lows was “quite a bearish signal,” suggesting that the uptrend of the last two and a half years is drawing to a close.

“It (looks) very bleak but you could still argue that the trend isn’t over. However, if it starts closing below 5,440 (the weekly Ichimoku Cloud, a trend-following technique) on a weekly basis we would conclude that yes, the trend has turned.”

Strategists and economists highlighted Friday’s key U.S. August non-farm payrolls report as a potential game changer.

Wall Street’s rout resumed on Wednesday, even as a gauge of U.S. private jobs surprised on the upside, with U.S. blue chips down 0.5 percent by London’s close.

Among individual movers, Europe’s largest drinks can maker Rexam shot up 4 percent after posting an above-forecast 19 percent rise in first-half profit.

Marks & Spencer was another strong gainer, up 1.1 percent, aided by upbeat comment from Arden Partners.

Sector peer Next fared better than the wider market, off 0.2 percent, after reporting first-half sales at the top-end of company guidance.

Drugmaker Shire, meanwhile, bucked the firmer trend seen in other stocks perceived as defensive. It fell 4 percent as BofA Merrill Lynch became the latest broker to cut its rating, to “neutral” from “buy,” on valuation grounds.

Editing by Jane Merriman

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