London Report: FTSE falls for third day in a row on taper fears

THE UK benchmark equity index fell for the third straight day yesterday to six-week lows, with investors anxious over the prospect of a forthcoming scaling back of US monetary stimulus.

The market also took a technical hit as a clutch of companies including bank HSBC and Intercontinental Hotels began trading without entitlement to their latest dividend payout, automatically shaving more than 10 points off the index.

The minutes of the US Federal Reserve’s July meeting, out after the market close on Wednesday, may give clues on its future policy, and bond yields have already risen over the last month on expectations that the Fed may start to slow the pace of its asset purchases – known as quantitative easing – next month.

“It really is a question of seeing what happens when the Fed releases its minutes, and the speculation is that there may be a slowing of QE, which is why the market has been drifting down these last few days. When volume is light, it leads to a tail-off quite quickly,” Mark Foulds, sales trader at ETX Capital, said.

The blue-chip FTSE 100 index closed down one per cent, or 62.62 points lower, at 6,390.84 points, breaching 6,400 in late trade, although volume was just 78 per cent of its 90-day average.

HSBC was hit additionally by its international exposure, with the rupee hitting an all-time low against the dollar as emerging markets bore the brunt of concerns over the stimulus programme, which has pushed down bond yields and helped to drive a global equity rally so far this year.

Miners were the biggest sectoral fallers after ex-dividends were accounted for, dropping 1.4 per cent on caution in demand for stimulus-sensitive copper and for safe-haven gold, which could lose its appeal if the dollar strengthens.

Despite the retreat from a 13-year high hit in May, the FTSE is still up nine per cent since the start of 2013.

Citi strategists said they preferred the UK market to continental European ones, with investors encouraged by signs of an economic recovery in Britain.