London Report: Banks lead FTSE down on doubt about Fed policy

BRITAIN’S top share index fell yesterday, led down by banks on uncertainty over the timing for an expected scaling back of US Federal Reserve monetary stimulus.

Aberdeen Asset Management, among the top risers earlier yesterday after saying it expected to meet profit forecasts, pared back its gains to trade up 0.3 per cent.

Traders noted its exposure to emerging markets which are sensitive to the direction of monetary policy in the world’s largest economy, though highlighted that it looks cheap against its peers.

Aberdeen trades on a 12-month forward Smartestimate price earnings ratio of 11.7 times, compared with Schroders on 17.6 times, according to Thomson Reuters Starmine data.

The FTSE 100 closed down 39.06 points, or 0.6 per cent, at 6,557.37 points as Fed officials took to the speakers’ circuit, while the UK banking index shed 1.2 per cent.

“You’ve got to lock in your profits,” said Nick Xanders, strategist at BTIG. “The communication (from the Fed)... while they’re trying to be clear, it’s actually becoming very muddled.”

The UK benchmark extended a fall from Friday, when St Louis Federal Reserve Bank President James Bullard said it was possible the US central bank would start cutting its $85bn (£53bn) a month of bond purchases in October.

Some British shares reacted to analyst comments, with chemicals maker Croda International up 1.8 per cent, leading the gainers after Credit Suisse raised its stance on the stock to “outperform” from “neutral”.

National Grid fell 1.5 per cent after UBS cut its recommendation for the utility to “neutral” from “buy” on valuation grounds.

European shares held below five-year highs yesterday, as solid Eurozone data and Angela Merkel’s landslide personal victory in Germany’s election were counterbalanced by concerns about US fiscal and monetary policy.

The FTSEurofirst 300 closed down 0.5 per cent at 1,256.11 points, holding below last week’s five-year high of 1,274.59.

Germany’s Dax fell 0.5 per cent to 8,635.29 points, after hitting all-time highs last week.

Deutsche Post, off 3.7 per cent, was among the top fallers in Europe, hit by profit-taking after a 44 per cent rally this year, which culminated in its accession yesterday to the EuroSTOXX 50 index.