Economic shocks sent FTSE back below the 6,000 mark

BRITAIN’S top share index dropped back yesterday as below-par US economic pointers and weak UK manufacturing and housing data intensified investor concerns about the strength of the global economy.

At the close, the FTSE 100 index was down 61.38 points, or one per cent, at 5,928.61, reversing sharply in the afternoon after briefly pushing back close to the psychologically important 6,000 level in the morning session.

Energy and banking stocks suffered the biggest falls as risk appetite evaporated, with Lloyds Banking Group down 3.8 per cent and BG Group off 3.1 per cent.

“The markets finally ended their winning streak as data this afternoon suggested that the U.S recovery was slowing, and with non-farm payrolls numbers on Friday there will be little reason for that to change before then,” said Mic Mills, head of electronic trading at ETX Capital.

As a precursor to the US jobs report, a survey by ADP Employer Services yesterday showed US private employers added a scant 38,000 jobs in May, far below expectations and the lowest level since September 2010.

Weak domestic data also weighed in London, with PMI manufacturing activity at a 20-month low in May, while mortgage approvals were also lower than expected in April.

UK blue chips dropped back in tandem with sharp falls by their US peers, which were down 1.2 per cent by London’s close.

Baring Asset Management expressed concern that valuations for global equity markets offer little leeway for the potential earnings disappointments that could accompany the slowing of the global economic recovery.

“After two years of strong growth, recent data suggests that most economic indicators are now peaking out in the West from the troughs of early 2009 ... Against this backdrop, the short-term outlook appears choppy,” said Percival Stanion, head of asset allocation at Barings.

Vodafone was a top FTSE 100 faller, down 4.4 per cent, as the market heavyweight traded ex-dividend, alone knocking over 12 points off the blue chip index.

Overall 16.83 points were removed from the index by ex-dividend considerations, with Capital Shopping Centres, Intertek, National Grid and WPP also losing their payout attractions.

Among the minority or blue chip gainers, broker comment played an important role. G4S was the top riser, up 1.8 per cent as Espirito Santo initiated coverage on the security services firm with a “buy” rating.

Anglo-French property investor Hammerson added 1.4 per cent as Morgan Stanley upgraded its stance to “overweight”.

And Aggreko rose 0.8 per cent after Canaccord Genuity upgraded the temporary power provider's rating to “buy”, saying momentum in the business outweighs valuation concerns.

Outside the top flight, Xchanging gained nine per cent after the struggling outsourcer revealed the sale of its loss-making US business.

Crisis-hit care homes provider Southern Cross was the top faller in the FTSE, down 18 per cent, despite agreeing a drastic rent reduction.