FTSE dwindles as defensive stocks drop ahead of Fed and euro news

ISH

ISH blue chip shares dipped yesterday as weakness in defensive stocks outweighed strength in risk-sensitive cyclicals, such as miners, and investors positioned for more newsflow out of Europe and the United States.

The FTSE 100 closed down 1.60 points, or 0.03 per cent, at 5,793.20, with the index yo-yoing in a tight range around the psychologically important 5,800 level.

The blue chip index consolidated after hitting a 13-month high on Friday following fresh pledges last Thursday from the European Central Bank (ECB) for a government bond-buying programme to help fix the Eurozone debt crisis.

Several political hurdles to this remain, notably a German constitutional court (GCC) ruling tomorrow on the Eurozone’s European Stability Mechanism (ESM) rescue fund, although most analysts expect this to be passed.

“Given our expectations of a thumbs up from the GCC then we would anticipate equity markets to continue to rally, with financials and cyclicals to be in the forefront. If the GCC returns a negative stance then equity markets may well be marked sharply lower,” said Gerard Lane, market strategist at Shore Capital.

Miners were the top performers, tracking firmer copper prices as expectations built for further stimulus measures from central banks after weak trade data from China, the world’s top metals consumer.

A disappointing US jobs report last Friday was also seen as supporting action from the Federal Reserve this week.

UBS said it expects a third round of quantitative easing when the Fed concludes a two-day meeting on Thursday, which would trigger capital flows to emerging markets and potentially push miners towards the top of their valuation ranges.

UBS raised a number of price targets in the mining sector, upgrading Kazakhmys, the world’s 10th-largest copper miner, to “buy” from “sell”. Kazakhmys shares topped the blue chip risers, up 4.4 per cent.

The sector was also in the spotlight after commodities trader Glencore tabled a raised $36bn all-share bid for miner Xstrata, warning it would not improve the terms again after making concessions.

Xstrata was up 1.2 per cent while Glencore fell 2.1 per cent.

Energy shares were also higher, led by BP with the heavyweight stock’s 0.70 per cent rise accounting for around a 2.3 point gain on the FTSE 100 index as investors welcomed further asset disposals by the group.

US firm Plains Exploration & Production is buying BP’s stake in some deepwater Gulf of Mexico wells for $5.55bn.

“The implied price of the deal is significantly higher than we had expected,” said RBC Capital Markets analyst, Peter Hutton, in a note.

Away from commodity issues, Marks & Spencer rose 2.7 per cent, as takeover speculation swirled around the clothing retailer once again.

Bankers are exploring debt packages to back a potential buyout of M&S after being approached by a number of private equity buyers interested in a deal, loan bankers said.

But elsewhere on the high street, the owner of the Primark discount clothing chain, Associated British Foods, fell two per cent as investors discounted a strong trading update from the retailer to food producer after a strong run in its shares.

Other food producers, brewers and defensive stocks dominated the blue chip fallers’ board as investors switched to more risk-sensitive cyclical stocks. Brewer SABMiller fell 2.3 per cent, while consumer products firm Unilever shed 1.3 per cent.