FTSE ends flat as S&P eyes Eurozone rating downgrades

THE UK’s top share index ended flat yesterday, with banks and retailers falling and sentiment hurt as credit agency Standard & Poor’s warned of a possible downgrade to most Eurozone countries.

At the close, the FTSE 100 index was up 0.76 points or 0.01 per cent at 5,568.72 following a see-saw session, having closed at a five-week high on Monday.

Banks were the main drag on the blue chips, led by global lender HSBC down 1.9 per cent, as worries over the Eurozone debt crisis were exacerbated by S&P’s warning that it may downgrade 15 out of 17 Eurozone countries, including top-rated Germany and France, if EU leaders fail to agree on a plan to solve the debt crisis at a summit on Friday.

“Markets remain quiet and rangebound as investors wait to see whether the summit in Europe can lead to a successful outcome for the single currency. Whilst the spectre of downgrades remain, the European bourses are finding it hard to reach positive territory,” said Mic Mills, head of electronic trading at ETX Capital.

The EU said the Eurozone’s economy barely grew in the third quarter, with collapsing business confidence and slowing industry pointing to a recession and potentially giving the European Central Bank grounds for an interest rate cut this week.

Retailers suffered after a British Retail Consortium survey said the sector saw its biggest annual fall in underlying sales since May last month after widespread discounts failed to lure pre-Christmas shoppers.

Marks & Spencer, Next, and mid cap Home Retail shed 4.3 per cent, 3.2 per cent, and 8.6 per cent respectively.

Analysts at Singer Capital Markets cut their clothing sector profit forecasts, taking them five per cent below consensus on average to reflect how difficult October and November have been, and how margins will probably come under intense pressure in December.

Engineer Meggitt was the top FTSE 100 faller, down 4.5 per cent, after Credit Suisse downgraded its rating to “underperform” from “outperform”.

Wolseley was the biggest blue chip riser, up 3.6 per cent, as the world’s biggest building supplies company posted a 16 per cent increase in first-quarter trading profit. Seymour Pierce said the results were ahead of its expectations and upgraded its rating to “hold” from “sell”.

Otherwise defensively-oriented stocks dominated the blue chip leader board, with pharma groups GlaxoSmithKline and Shire up two and 1.9 per cent respectively, while Imperial Tobacco added 1.3 per cent.

“The main gainers today have been from the more defensive sectors such as healthcare and telecommunications, with Glaxo and AstraZeneca gaining on the back of an upgrade of Shire by Goldman Sachs. BT and Vodafone are doing well as is technology stock Sage Group,” said CMC Markets analyst Michael Hewson.

Technical analysis of the FTSE 100 index was cautious.

“Indices appear to have reached an indecision level with reversal patterns providing an early indication that a pullback could be in the making,” said Sandy Jadeja, chief technical analyst at City Index. “If we do see a correction, it is probably going to be short term followed by a further move higher. The short-term trend has turned bullish given last week’s price action. As long as momentum remains bullish, December could end on a positive note but we remain cautionary leading into January 2012.”