FTSE drops as investors start to book profits

LONDON REPORT

THE FTSE 100 fell from five-year highs yesterday, retreating from a key technical resistance and leaving some investors bracing for further falls in the remainder of the month.

The FTSE 100 closed down 29.12 points, or 0.5 per cent, at 6,481.50 after failing to break above its January 2008 high at around 6,534 the previous day.

This is a level some investors were starting to see as a turning point, or “pivot”.

The index's 14-day Relative Strength Index, a momentum indicator, was retreating from “overbought” territory after hitting a high last seen in early February, when it was also followed by a selloff.

These were seen as signs buying momentum was beginning to fade leading some investors to book their profits on some of this year's strongest performers.

These included outfits like security firm G4S, which retreated from all-time highs.

“We might well have seen the high for March,” Andy Ash, head of sales at Monument Securities, said.

“Probably we’re going to have pivot.”

He cited concerns about a new debt crisis in Italy, as highlighted by a weak auction yesterday.

He also cited difficult fiscal talks in the United States as possible catalysts for the downturn.

The health of the world’s largest economy has been a key driver for the FTSE, which cut losses in afternoon trade yesterday after robust US retail sales data.

It still underperformed its main continental peers, France's Cac and Germany's Dax, as a number of stocks started to trade without entitlement to their latest dividend.

These including heavyweights British American Tobacco and Standard Chartered.

Bucking the trend was Britain's biggest insurer Prudential.

It raised its dividend on the back of soaring profits, sending its shares up 9.3 per cent in volume three times its 90-day average.

Ronnie Chopra, head of strategy at Tradenext, said the rally provided an opportunity for contrarian trade, built selling Prudential and buying its struggling rival Aviva, which cut its dividend earlier this month.

The spread between both companies' share prices hit an all-time highs yesterday, Thomson Reuters data showed.

Chopra said the valuation gap could revive speculation of a Prudential bid for Aviva.

“If Prudential wants to be predatory and buy Aviva they probably wouldn't get a better time in terms of the valuation disparity between both companies,” he added.