Banks and miners suffer after MPC’s Weale warns of fresh dip

BRITAIN’S top share index closed lower yesterday after weak US existing home sales data cast further doubt on the economic recovery story, with UK banks, miners and energy stocks bearing the brunt of the sell-off.

The FTSE 100 ended down 78.89 points, or 1.5 per cent, at 5,155.95, its lowest close since 20 July, having gained 0.8 percent on Monday.

The UK benchmark closed below 5,187.41, its 38.2 per cent Fibonacci retracement of the peak in April to the low on 1 July, with the next support level at 5,034.72, its 23.6 per cent retracement level.

Existing home sales in the United States for July plummeted 27 per cent, a drop that was twice as steep as expected, to an annual rate of 3.83m units, far below the 4.7m rate forecast by a Reuters poll of economists.

“We’ve had a raft of bad figures for the last month or so and the market’s shrugged them off, but the weight of the bad news has really got too much,” said Mark Priest, senior equities trader at ETX Capital. "We’ll probably see more of this,” he added.

Miners and energy stocks were hurt by lower metals and crude prices, as the downbeat US data reinforced worries about the outlook for demand.

India-focused mining group Vedanta Resources was the standout blue chip faller, off 7.6 per cent, after India rejected its plan to mine bauxite in an eastern state over environmental concerns.

The blow comes as Vedanta seeks to buy a majority stake in Cairn India from its UK-based parent Cairn Energy, although India’s trade minister said state-run Oil and Natural Gas Corp should have a say in the deal.

Cairn Energy fell 4.1 per cent after the oil explorer struck gas in Greenland, which disappointed investors who had hoped for an oil find.

Chilean miner Antofagasta shed 1.5 per cent after it trimmed its annual production target, even though it posted a near doubling in first-half earnings per share.

Global miner Rio Tinto, meanwhile, fell 4.3 per cent after a Canadian newspaper linked it and a Chinese partner with a bid for Potash Corp, which is fending off a $39bn (£25bn) hostile bid from BHP Billiton. Rio Tinto declined to comment.

Sticking with both heavyweight miners, South Africa’s National Union of Mineworkers said that its members at a Rio Tinto-BHP Billiton joint venture will go on an indefinite strike from Friday following a wage dispute. BHP Billiton was off 1.5 per cent.

Coal and base metals miner Xstrata dropped 2.9 per cent after it announced a $381m agreed takeover of Australian-listed Sphere Minerals.

Banks, closely geared to the overall health of the economy, were big fallers, with Royal Bank of Scotland the worst off, down 3.5 per cent. Britain faces the risk of sliding back into recession and the central bank’s growth forecast for this year may be too optimistic, new Bank of England policymaker Martin Weale said.