The blue-chip FTSE 100 index had initially risen but then lost ground to close 0.5 per cent lower at 6,084.59 points as caution crept in before this week’s US Federal Reserve meeting. The FTSE is down seven per cent since the start of 2015.
A Reuters poll on Friday showed a small majority still expect a Fed hike on Thursday, although other markets-based models suggest policy tightening will be delayed.
A US rate hike could put pressure on the Bank of England to follow suit, and higher interest rates often hurt stock markets by boosting the appeal of bonds and cash, which have become ultra-low yielding.
“Sentiment is a bit on the cautious side. I’d definitely be a seller of rallies at the moment,” said Beaufort Securities sales trader Basil Petrides.
Weak economic data from China also weighed on miners, since China is the world’s biggest metals consumer, and mining company Glencore was further dented by a price target cut from Jefferies.
Chinese stocks fell further yesterday after data which suggested that China’s economic growth was running below the 2015 target level of about seven per cent.
Morrisons also retreated 4.5 percent after HSBC cut its profit forecasts on the supermarket group.
However, technology group ARM climbed 1.5 percent. Traders said ARM was benefitting from an upbeat article by Barron’s on Apple, which uses ARM designs in its products.
“We remain buyers of ARM,” said Aviate Global founding partner Gary Paulin.
Nevertheless, uncertainty over the Fed’s meeting meant any attempts by the FTSE to gain ground could be short-lived, said equity dealers.
“Understandably, as we draw towards Thursday’s long anticipated Fed meeting, the willingness of traders to hold a position throughout the whole week is going to be lower,” said IG market analyst Joshua Mahoney.