Defensive stocks, usually resilient to economic uncertainty, were among the top fallers, with consumer staples and healthcare names combining to take over 20 points off the blue-chip FTSE 100 index.
Many of those names are among the FTSE’s more European-exposed companies, in contrast to the globally-exposed miners, and were hit when Germany’s Zew sentiment survey came in well below low expectations, a signal that a flare-up in the Eurozone crisis had hit Europe’s largest economy.
“There’s been a natural bounce from the more fickle miners ... but that’s no explanation for the defensive weakness as we are hardly ‘risk on’,” Yusuf Heusen, senior sales trader at IG Markets, said.
“German confidence may well be weighing more heavily, as the defensives tend to have a wider European presence, especially looking at chemicals and household goods.”
Healthcare stocks have been among the top performers in 2013, up 7.3 per cent year to date, but yesterday the sector fell 2.7 per cent – its worst daily performance since January 2012.
By contrast, miners, which had dropped in line with commodity prices in the last two sessions to hit three-year lows, were one of the few sectors to rise, stabilising along with firmer metal prices.
“The amount that the commodity stocks had sold off is akin to pricing in a global recession, which we think is very unlikely ... so this could represent an interesting buying opportunity,” James Butterfill of Coutts said.
Gold and silver prices recovered after hitting their lowest levels in around two years overnight, tempting some investors back into mining shares that suffered steep drops on Monday’s trading.
Precious metal specialists Fresnillo and Randgold Resources added 7.9 per cent and 3.1 per cent respectively, having slumped on Monday.
Xstrata and Glencore both rose in volume of over twice their 90-day average after Glencore won Chinese approval for its proposed takeover of the mining group.
Miners – the biggest contributors to the FTSE 100’s fall in the previous two sessions – added 5.2 points to the index, but were the only sector to add points to the index, which closed 39.02 points lower, or 0.6 per cent, at 6,304.58. Butterfill said that after a strong start to the year on the FTSE 100 the weakness didn’t surprise him, with the index now back at his fair value at around 6,310.