Commodities drag on FTSE but high street names rally

COMMODITY stocks pulled Britain’s top share index lower yesterday, ending the FTSE 100’s recent rally as disappointing US manufacturing data spoiled investors’ appetite for risk.

The FTSE 100 closed down 98.81 points, or 1.6 per cent, at 5,984.07, with the FTSE volatility index up 11.4 per cent, hitting a near five-week high.

The FTSE 100 had climbed 3.6 per cent since 18 April, rebounding from a sharp decline following Japan’s earthquake, political unrest in the Arab world and European debt concerns.

Riskier assets bore the brunt of the day’s sell off.

Miners tracked falling metals prices, which sagged after top commodities consumer China said it would roll out more measures to fight inflation and after the Reserve Bank of India hiked interest rates.

Antofagasta shed nine per cent after first-quarter copper production missed initial targets and it cut its full-year target for its flagship Los Pelambres mine.

The miner also traded for the first time without the attraction of its interim dividend and special payout.

Barclays, GlaxoSmithKline and Weir Group also fell after going ex-dividend.

Energy issues were weak as oil prices weakened after industry data showed US crude stocks rose sharply last week.

BP shed two per cent after it paid to settle US federal civil claims from 2006.

“In the last few months we have moved more away from cyclical and into defensive positions,” Simon Gergel, portfolio manager of the £93m Allianz RCM UK Equity Income Fund.

Gergel cited GlaxoSmithKline, Royal Dutch Shell and Scottish & Southern Energy as examples, along with some food producers such as Unilever and Reckitt Benckiser.

It wasn’t all doom and gloom as results from fashion chain Next, which rose 4.4 per cent after raising guidance, boosted appetite in the sector.

Analysts said Next’s results boded well for sector peers, with Marks & Spencer up 3.8 per cent.

But broader sentiment took a further blow after an industry report revealed the pace of growth in the US services sector unexpectedly eased in April.

Earlier, a survey showed British construction sector activity slowing more than expected last month.

Chip designer ARM Holdings shed 7.3 per cent, with traders and analysts pointing to an announcement from Intel due after the market closed, which they say will highlight the competitive threat from the rival chip designer.

Mid-cap firm Imagination Technologies fell 5.8 per cent as Evolution Securities cut its rating on the British chipmaker to “neutral” from “buy”, advising investors to lock in profits following the departure of the firm’s chief financial officer on Tuesday.

Blue-chip technology firm Smiths Group dipped 2.7 per cent after it announced on Tuesday that the head of its detection unit would step down immediately.

Technical levels suggested there was room for London’s blue chips to rally again.

“I am quite constructive on the FTSE relative to other markets, especially as sterling is continuing to weaken,” said Lex van Dam, hedge fund manager at Hampstead Capital, which has over £300m of assets under management.