Drop in mining stocks takes a toll on the FTSE but Rolls-Royce begins to recover

BRITAIN’S top shares fell yesterday as mining and energy stocks tracked lower commodity prices, while financials eased on Basel III and sovereign debt concerns.

Rolls-Royce rose 2.7 per cent after the engine manufacturer announced progress in understanding the cause of the failure of a Trent 900-powered A380 Qantas flight on 4 November, adding the incident was specific to that type of engine.

The incident has rattled a global aviation industry recovering from heavy losses during the downturn, and has been damaging for Rolls-Royce, its shares having dropped nearly 10 per cent.
The FTSE 100 closed down 25.39 points, or 0.4 per cent, at 5,849.96. It hit a 29-month closing high on Friday after investors cheered the US Federal Reserve's commitment on Wednesday to boosting growth.
Commodity-linked assets traded lower as an unwinding of dollar short positions that began after solid US jobs data on Friday gathered pace.

Xstrata and Anglo American, down 1.4 per cent and 2.4 per cent respectively, were also hit by uncertainty over a strike by workers at the world’s third biggest copper mine.

African Barrick Gold shed 1.9 per cent after Goldman Sachs cut rating and earnings estimates.

Energy stocks declined in tandem with a fall in the crude oil price. Tullow Oil dropped two per cent as Goldman Sachs cut its rating to “neutral” from “buy”.

Scottish & Southern Energy fell 1.6 per cent after Nomura cut its rating on the utility to “reduce” from “neutral”.

Financials were struggling with traders citing criticism over the Basel III agreement, ahead of the G20 summit in Seoul on11-12 November and resurgent Eurozone sovereign debt woes weighing on stocks.

Banks were lower, led by Royal Bank of Scotland which shed 3 per cent.

Investors will watch for the Bank of England quarterly inflation report on Wednesday and governor Mervyn King's news conference for any indication on the central bank's own quantitative easing programme.

On the second tier, Irish Life & Permanent tumbled 17 per cent after KBW downgraded its rating on the bancassurer on growing concerns over the deteriorating economic environment in Ireland.

Sticking with mid-caps, Gartmore slid 15 per cent after star manager Roger Guy became the latest key figure to leave the fund manager, prompting Numis to place its rating under review. Serco fell 2.3 per cent as S&P Equity Research began its coverage of the outsourcing firm with a “sell” rating. On the upside, satellite operator Inmarsat rose three per cent after beating third-quarter earnings expectations.

Invensys gained 2.2 per cent as Credit Suisse joined a crop of brokers who have recently raised their target prices on the engineering group.