views

Large cap index flat as lack of direction stalls progress

Gains in energy stocks, pharmaceuticals and banks outweighed losses in miners yesterday, leaving the FTSE 100 0.1 per cent, or 3.52 points, higher at 4,386.94.<br /><br />&ldquo;The market&rsquo;s evenly balanced. It&rsquo;s discounting good news so although it may go higher over the next few weeks, it is slightly overvalued,&rdquo; said Graham Secker, equity strategist at Morgan Stanley.<br /><br />Energy stocks added most points to the index. <strong>BP</strong> and <strong>Royal Dutch Shell</strong> added 1.0 and 1.3 per cent respectively.<br /><br />However, miners were the biggest drag on the index, shaving off 17.5 points despite recovering metal prices, with <strong>BHP Billiton, Xstrata, Lonmin</strong> and <strong>Anglo American</strong> dropping 2.5 to 6.6 per cent.<br /><br /><strong>Rio Tinto</strong> was among the heaviest losers, down 6.6 per cent with traders citing talk it may look to a rights issue as a way of dealing with its huge debt burden after reports its planned $19.5bn (&pound;12.1bn) stake sale to <strong>Chinalco</strong> had collapsed.<br /><br />Stocks retreated briefly and the pound fell on talk Prime Minister Gordon Brown would resign, but the moves were reversed after the rumours were dismissed by Downing Street.<br /><br />&ldquo;The government&rsquo;s credibility regarding its fiscal rules is full of holes and if there&rsquo;s a change at the top it wouldn&rsquo;t obviously weaken sterling,&rdquo; Secker at Morgan Stanley said. &ldquo;Perversely it could actually strengthen if the market thinks there&rsquo;s a steadier hand at the tiller.&rdquo;<br /><br />Banks gained, recovering from earlier losses. <strong>HSBC, Standard Chartered, Barclays, Lloyds Banking Group </strong>and<strong> Royal Bank of Scotland</strong> gained between 0.2 and 3.1 per cent.<br /><br />The European Central Bank kept rates on hold at a record low of 1 per cent but said it expected a much sharper recession in the euro zone this year than previous forecasts.<br /><br />Defensive pharmaceuticals stocks and food retailers also helped the index edge into positive territory.<br /><br /><strong>AstraZeneca, GlaxoSmithKline</strong> and Shire gained between 0.6 per cent and 2.7 per cent while <strong>Tesco</strong> put on 2.1 per cent and <strong>Sainsbury</strong> added 2.1 per cent.<br /><br />&ldquo;At the moment, investors seem to have a somewhat negative perception of risk and that&rsquo;s weighing on UK shares,&rdquo; said IG Index market strategist Anthony Grech. &ldquo;After rallying some 30 per cent from the March lows in such a short space of time, it&rsquo;s a struggle to see what is going to happen next to encourage investors that there&rsquo;s a lot more growth still to come from shares at the moment.&rdquo;