Wednesday 20 May 2009 8:00 pm

Financials prove that what goes up must come down

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THE FTSE 100 closed 0.3 per cent lower yesterday, with shaky financial stocks offsetting strength in heavyweight oils and miners.

The index ended the session down 13.84 points at 4,468.41, up 0.8 per cent on the year, having gained nearly 30 per cent since a six-year low hit on 9 March.

“We are still in debate mode as to whether this is a continuing bear market rally or whether it is actually marking the start of another bull market,” said Richard Hunter, head of UK equities at Hargreaves Lansdown.

“There are a number of question marks which remain, not least of which is the strength of the US economy, let alone the UK economy, (but) there are more and more economic indicators coming through suggesting that, although we can’t start to use the word ‘recovery’ yet, at least the pace of decline seems to be moderating.”

Underlining the uncertainty over the economy, the International Monetary Fund said that the British recession was easing but any recovery was likely to be subdued due to the high levels of household debt and a possible shortage of bank credit.

Financials were under pressure, with Lloyds Banking Group the biggest FTSE 100 faller, down almost 8 per cent after it said the terms of a state-backed plan to insure its riskiest assets might change and regulators could force it to make disposals.

HSBC, Standard Chartered and Barclays were also weak, falling 0.4 per cent to 2.4 per cent.

Retailers were also on the back foot, extending the previous session’s losses. Marks & Spencer, which reported a 40 per cent slide in full-year profits on Tuesday, fell a further 5.7 per cent.

Sainsbury and Home Retail fell 4.8 and 4.3 per cent respectively.

But Mothercare bucked the trend, ending up 1.7 per cent, after the midcap mother and baby products retailer posted a 12.4 per cent increase in yearly profit and hiked its dividend by a fifth.

Miners topped the leaderboard, building on Tuesday’s advance, with copper up 1.7 per cent.

Lonmin, Vedanta Resources, Fresnillo, Kazakhmys, Rio Tinto  and Randgold Resources were the top six risers, adding between 4.2 and 8.1 per cent.

Oil majors also helped limit the FTSE 100’s losses.

BP, Royal Dutch Shell and Tullow Oil added between 0.7 and 1.5 per cent.

Defensive pharmaceutical stocks were broadly stronger as investors edged back into perceived safety. Shire put on 2.6 per cent, and AstraZeneca climbed 1.4 per cent.

Among individual stocks, Experian rose 1.4 per cent after the credit information firm reported an 8 per cent increase in full-year operating profit, beating market expectations.

Mobile telephone group Vodafone slid 3.5 per cent after Fitch Ratings changed the outlook on the long term issuer default rating to “negative” from “stable”.