May 31, 2013 / 7:08 AM / 6 years ago

FTSE suffers second weekly loss as stimulus rally fades

LONDON (Reuters) - Britain’s top share index recorded its second consecutive weekly loss on Friday as investors cashed in on a year-long rally on speculation U.S. monetary stimulus may be scaled back.

The London Stock Exchange building is seen in central London September 24, 2009. REUTERS/Stephen Hird

The FTSE 100 shed 73.9 points to 6,583.09 points on Friday, ending the day and the week down 1.1 percent. It was 4.3 percent off a 13-year high hit last week.

A 25 percent rally started in June 2012 and largely fuelled by global money printing has slowed down in the last couple of weeks on speculation the U.S. Federal Reserve may taper its asset-purchase programme.

“We’ve been taking profit and either holding cash, waiting to buy on the dips, or recycling into other parts of the portfolio,” said Oliver Wallin, investment director at Octopus Investments, adding a 5 percent drop could provide a good entry point.

Charts showed the FTSE was likely poised for further falls after reaching successively lower intra-day highs and lows this week, pointing to fading buying momentum.

In addition the index’s Bollinger bands, trading ranges calculated from its moving average, have been converging - a pattern that is typically followed by a sharp move.

“We’re getting on for a week of consecutive lower lows and the Bollinger bands are closing tighter, indicating a strong break is imminent,” said Steve Ruffley, market strategist at spreadbetting provider InterTrader. “Would you be buying lows? I wouldn’t.”

Flows into European equities from U.S.-based funds also ground almost to a halt over the past week, Lipper data shows.

Yet data from spreadbetters IG and CMC showed their clients were evenly split between buyers and sellers of the FTSE, suggesting investors, facing low bond yields, were still prepared to add to their equity positions.

“There’s a lot of money on the sidelines and bouncebacks are happening quite quickly,” said Octopus’ Wallin, who believes the Fed is unlikely to scale back its programme soon.

“We’re still in a sweetspot and in an investment environment that is supportive for equity markets in the remainder of the year.”

Editing by Catherine Evans

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