FTSE drops as mining rally fails to counter bank jitters

BRITAIN’S leading share index closed marginally lower yesterday as weaker financials prevailed over a mining rally inspired by upbeat economic data from China.

Chip designer ARM Holdings was the top riser, up 6.6 per cent, with traders citing favourable broker comment as the mobile world met in Barcelona.

Goldman Sachs said ARM’s management underscored its bullish view of the company’s long-term opportunities, adding “there’s clearly room for ARM’s royalty rate [from licence agreements] to increase over the next five years”.

Morgan Stanley, meanwhile, said “tablet demand is still underappreciated” by the market. Nearly all the world’s mobile phones and tablets use ARM’s low-power technology.

The FTSE 100 closed down 2.81 points, or 0.1 per cent, at 6,060.09, having hit a two and half year high earlier.

Banks and insurers were weaker as concerns over Europe’s debt situation and the precariousness of global recovery remained in focus.

Lloyds Banking Group fell 1.6 per cent, while Barclays, which kicks off the reporting season with full-year results this morning, shed 0.1 per cent.

Data suggested Portugal headed back into recession in the last quarter of 2010.

“The yield on Portugal’s 10-year government bond reached a new high above seven per cent, and Spain’s yield ticked higher, reminding the market the European debt crisis is by no means over,” said Angus Campbell, head of sales at Capital Spreads.

US President Barack Obama proposed a budget yesterday that would cut the US deficit by $1.1 trillion (£686bn) over 10 years, setting the stage for a bitter fight with Republicans who want even tougher spending controls.

Traders also cited technical factors for holding back the FTSE 100, after gaining some three per cent in February.

“After the big run-up we have seen since the end of January a phase of consolidation is arguably overdue,” said Yusuf Heusen, senior sales trader at IG Index.

International Consolidated Airlines Group shed 1.6 per cent as brokers cut target prices for the airline after last week’s warning from European peer Air France-KLM.

Miners rose as Chinese economic data showed a smaller-than- expected trade surplus in January.

African Barrick Gold was up 2.9 per cent while Xstrata and Rio Tinto, fresh from blockbuster results last week, closed 2.0 and 1.3 per cent higher respectively.

Traders also cited talk that Chinese inflation could come in lower than expected, easing fears of more interest rate rises in the world's biggest consumer of commodities.

India-focused Essar Energy gained 2.7 per cent as Bank of America Merrill Lynch started coverage of the stock with “buy”.

Oil services blue-chip Petrofac, up 2.5 per cent, got a boost from acquisition moves in the sector.

Invensys and Weir Group rose 3.4 and 4.0 per cent respectively, with traders citing an interview in the Financial Times quoting Siemens’ chief financial officer, which said the German conglomerate was interested in making acquisitions - as helping lift engineering blue-chips.

Mid-cap energy services firm John Wood Group jumped 13.9 per cent as General Electric bought one of its units.