London Report: FTSE drops from six week highs on Lloyds sale

THE UK’S top share index fell off one and a half month highs yesterday, with Lloyds bank among the worst stocks, while traders held off adding to positions in fear of the US Federal Reserve reducing stimulus measures.

The blue-chip FTSE 100 index closed down by 0.8 per cent, or 52.69 points, at 6,570.17 points yesterday, having risen 0.6 per cent on Monday to its highest close since early August. The FTSE’s decline represented its biggest one-day percentage fall so far in September.

Part-nationalised bank Lloyds fell 3.5 per cent to 74.65p in heavy volume to make it one of the worst performers, reflecting Britain’s sale of a six per cent stake in the company at 75p per share.

Trading volumes in Lloyds came in at around four times the average 90-day amount, while volumes on the FTSE came in at 1.6 times the average 90-day amount.

Most analysts and investors welcomed the government’s move, saying it marked further progress in Lloyds’ recovery, although analysts at Investec kept a “sell” rating on Lloyds and pointed to the bank’s “anaemic” profits. Investors also refrained from buying new equity positions as the Fed started a two-day meeting yesterday.

According to a Reuters poll of economists, the Fed is expected to announce it will scale back a bond-buying programme that has driven much of this year’s global equity rally by $10bn a month. The Fed’s programme – known as quantitative easing (QE) – drove down bond yields and pushed investors over to the better returns on offer from stock markets, with the FTSE 100 up 12 per cent since the start of 2013.

“There may be some short-term corrections and volatility as a result of the Fed meeting but the long-term outlook for equity markets is still extremely attractive,” said George Godber, who manages the Miton UK Value Opportunities Fund.

“Even if they cut back by $10bn, there will still be a lot of QE going into markets,” he added, saying his preferred stocks included housebuilders due to signs of a UK economic recovery.

Strategists at US bank Citi also kept a longer-term positive view on the UK stock market. Citi maintained its end-2013 target for the FTSE 100 at 7,000 points and raised its end-2014 target to 8,000 points.