Commodities drag FTSE 100 down as US output eases

COMMODITY stocks pulled Britain’s top shares lower yesterday as US data showed a sharp slowdown in industrial output, and after investors switched into the dollar after The Bank of Japan’s yen intervention and recent sharp gains.

The FTSE 100 index closed down 11.85 points, or 0.2 per cent at 5,555.56, snapping a five session winning streak, having inched higher late on Tuesday to extend Monday’s four-month closing peak.

Heavyweight mining and energy stocks fell in tandem with crude and base metal prices as worries persisted over the choppy economic recovery in the US.

Industrial output data from the world’s biggest economy showed a rise of 0.2 per cent in August, matching expectations for a sharp slowdown from the prior month when auto production was unusually strong.

Investors also saw better value in switching funds into the US dollar after the Bank of Japan intervention to curb yen strength, and following the recent strength in commodities.

Despite continuing concerns over the recovery in the United States, Jimmy Yates, head of equities at CMC markets, said a double-dip recession is unlikely and sees the FTSE consolidating into 2011.

“At current levels, the FTSE has already troughed. While the picture going forward is
still very unclear, I do not think any downside will push us below 4,800 seen in July,” he said, forecasting the FTSE to be around the 5,675 level by mid-2011.

BP fell 2.7 per cent. The oil major lacked a clear chain of command for dealing with a loss of well control on a North Sea oil rig, safety regulators found three months before a blow-out in the Gulf of Mexico caused America’s worst ever oil spill.

Health and Safety Executive (HSE) inspectors visiting the Magnus platform 160km
northeast of the Shetland Islands in late January discovered there was confusion about who would order a well shut-off in the event of a blow-out, according to documents published on the HSE website on Wednesday. BP also failed to provide adequate safety training to North Sea staff and to conduct adequate oil spill response exercises.

Declines were curbed as US indexes showing some resilience following the industrial
output figures provided encouragement to the bulls.

As the UK market closed the Dow Jones and S&P 500 were firmer.

Both US indexes have lagged the FTSE’s rally over the last three weeks. London's blue chips have broken out of their two-month trading range, touching four month highs and rising almost 9 per cent.

The UK blue chip index carried a 12-month forward price-to-earnings of 9.84 times,
versus a 10-year average of 14.86, Thomson Reuters Datastream showed.

Fashion retailer Next led blue-chip gainers, up 6.7 per cent after meeting forecasts with a
13 per cent gain in first-half operating profit and keeping its full-year outlook unchanged.
Other retailers also benefited from Next’s success, with Marks & Spencer and Kingfisher each up 3.4 per cent, while supermarket groups Tesco and WM Morrison added 1.7 per cent and 0.6 per cent respectively.

Elsewhere on the downside, AstraZeneca shed 1.9 per cent after saying US regulators had extended their review of the drugmaker’s potential new blockbuster heart drug Brilinta by three months. Banks were easier. The session marked the two-year anniversary of the collapse of Lehman Brothers, which sparked turmoil in global financial markets.