FTSE retreats for first time this year after highest close since early 2011

BRITAIN’S blue chip index fell yesterday for the first time this year, baulking at technical resistance levels having reached its highest close for nearly two years in the previous session.

The FTSE 100 shed 0.4 per cent in broad-based losses, with every sector falling apart from financials, which received a regulatory boost over the weekend.

The index closed down 25.26 points at 6,064.58, having started the year with three sessions of gains totalling 3.3 per cent – well over half the total rise the FTSE achieved in 2012.

The gains took the index to its highest closing level since early February 2011, with the 14-day Relative Strength Index hitting 72. A level over 70 suggests that an index is overbought.

“The FTSE 100 index is nearing a key resistance threshold around the 2011 top at 6,105. The upward potential should be limited now... Intraday oscillators are overbought,” Nicolas Suiffet, technical analyst at Trading Central, said.

“The rally’s likely to lose momentum around the resistance threshold... It’s too late to buy but to early to sell.”

Energy and materials – a broad-based sector including commodity stocks and miners – were the main drag on the index, combining to take over 12 points off the index.

Falls in these sectors came in tandem with base metal and oil prices, traders said, adding there had been profit taking on the rally.

However, Zeg Choudhry, head of equities trading at Northland Capital Partners, said that even if the rally in commodity stocks had run out of steam, there weren't many sellers on the market.

“The market doesn’t feel too bad underneath, we’ve had a good run,” he said.

“It’s not really a big correction. When you see a big correction in the materials sector, it's normally 5-6 per cent falls. Then you would say people are running for the hills, but they’re not.”

While only five stocks gained more than one per cent, only two – National Grid and Centrica – were down more than two per cent. They fell after a Deutsche Bank note warned that the “worst was yet to come” for the utilities sector.

The only sector to add points to the index was financials, led by 0.5 per cent gains in banks on the back of a decision by global regulators on Sunday to give banks four more years and greater flexibility to build up cash buffers so they can use some of their reserves to help struggling economies grow.

European shares were also led down for the first time this yesterday, with utilities leading a broad retreat based on Deutsche Bank’s note.

After chalking up a 3 per cent weekly gain and hitting a near two-year closing high in the previous session, fuelled by a US budget deal and a solid US jobs report, the FTSEurofirst 300 ended down 0.3 percent at 1,161.44 points.

“I don’t think it’s a great surprise that we see a pause,” said Andrew Milligan, head of global strategy at Standard Life Investments.

“Generally the backdrop is that clients do seem a little more confident about the world given the economic data that’s appearing, or the absence of the ‘fiscal cliff’ debacle which was hanging over the markets in December.”

Utilities stocks were the standout fallers yesterday, off 1.6 per cent, after Deutsche Bank downgraded several firms and advised that there are no safe havens in the sector, traders said.

Deutsche downgraded industrial giant Rexnord from “hold” to “sell”, saying its shares appeared fully valued.