FTSE has a rollercoaster day as US data undoes debt rally

BRITAIN’S top share index shed 0.7 per cent yesterday after a rollercoaster session, with early strong gains on relief over a debt deal in Washington wiped out later by weak ISM data which threw the spotlight back on a faltering US economy.

At the close, the FTSE 100 index was down 40.76 points, or 0.7 per cent at 5,774.43, having reversed from triple-digit session highs back above the 5,900 level.

The UK index tracked a similar reversal on Wall Street, with the US blue chip index down one per cent by London’s close, having opened strongly higher only to be knocked by weak manufacturing data.

The Institute for Supply Management (ISM) said growth in the US manufacturing sector slowed more than expected in July while new orders hit their lowest level since June 2009.

“What would not normally be considered as a particularly major piece of data .. [caused] sentiment to turn on a sixpence and ruin all the hard work achieved by the bulls earlier in the day,” said Angus Campbell, head of sales, at Capital Spreads.

US-focused plumbing supplies group Wolseley was a big blue chip faller, down 3.9 per cent as the data raised fresh worries about the strength of the US econonomy.

“The focus now is very much on macroeconomic data and corporate earnings, both of which we have plenty of,” Campbell added, spotlighting Friday’s August US jobs report and the UK bank’ reporting season.

Part-nationalised lenders Lloyds Banking Group and Royal Bank of Scotland were the top two blue chip fallers, down 5.0 per cent and 4.3 per cent respectively, with the duo set to report numbers later this week.

Overall, however, the UK banking sector managed modest gains thanks to strength in global heavyweight HSBC, up 2.2 per cent after it posted better-than-expected first-half numbers yesterday.

Europe’s biggest bank rose 4.8 per cent after unveiling first-half pre-tax profit of $11.5bn, and as it announced it will shed 30,000 jobs -- roughly 10 per cent of its workforce.

“These results look better than expected, underlining the attractions of HSBC’s conservative balance sheet,” said Seymour Pierce analyst Bruce Packard, who reiterated his “buy” rating and 800 pence price target on the stock.

Investors were nervously looking ahead to a crucial vote in the US Congress yesterday after a White House-backed agreement was reached at the weekend to cut about $2.4 trillion from the deficit and avoid a humiliating credit default.

“I think the initial US debt accord news removed part of the uncertainty in the market, but we still need to get the votes to pass it,” said Paul Mumford, senior fund manager at Cavendish.

Defence contractors were big fallers, with Mumford noting worries about the impact of any potential cuts in the US military budget from the deficit reduction plan. Smiths Group shed 3.2 per cent, with BAE Systems down three per cent, and Rolls-Royce off one per cent.

Traders also pointed out that BAE and Rolls both benefited strongly last week following well-received results, while a downgrade in its rating by Oriel Securities also hit BAE.

Testing firm Intertek, the top FTSE 100 riser, was up 3.9 per cent, and real estate group Hammerson rose 1.4 percent.