Banks, commodities lead UK shares lower
LONDON (Reuters) - Cyclical shares led UK blue chips lower early on Friday, tracking weakness overnight in Asia and the United States and extending late falls from the previous session after the U.S. Federal Reserve dimmed hopes of fresh stimulus.
By 0742 GMT, London's blue-chip index was 40.57 points, or 0.7 percent lower at 5,407.22, having closed off intraday highs but still up 1.2 percent higher on Thursday after China cut interest rates in an effort to boost growth.
That drove a rally in riskier banking and commodity shares.
The FTSE 100 is down 2.2 percent on the year so far, with investors' confidence in equities eroded by Europe's debt crisis and the resulting slowdown in global growth.
But Darren Winder, strategist at Oriel Securities, took a bullish view of the index's prospects, saying company earnings estimates have been stable over the past few weeks, having fallen sharply around the turn of the year.
"We expect equity prices to be underpinned by further policy interventions, sustained earnings growth and balance sheet strength in the corporate sector," he said.
The FTSE's close on Thursday, however, was well off the intraday high after U.S. Federal Reserve Chairman Ben Bernanke soured sentiment as he showed reluctance to give fresh stimulus now to the world's largest economy.
Technical analysts said despite breaking out of the 5,250-5,400 trading range, the later fall on the FTSE 100 indicated a short-term overbought condition. Upside resistance was seen around 5,600.
Adding pressure were concerns that imminent economic data from China could be grim as the fallout from Europe's debt crisis spreads, taking the gloss off Beijing's first rate-cut in four years.
Miners .FTNMX1770, which rely heavily on demand from the world's fastest growing economy, were down 3 percent having gained 11 percent over the last 2 trading days, while energy shares .FTNMX0530 shed 1.2 percent. Both sectors tracked weaker commodity prices.
Johnson Matthey (JMAT.L), the world's largest supplier of catalytic converters, which rallied strongly on Thursday after it proposed its first ever special dividend, fell 2.3 percent as JPMorgan cut its price target on the firm.
Gulf-based oil rig maker Lamprell Plc (LAM.L) slumped 32 percent after the firm cut its 2012 forecasts again, just three weeks after a profit warning that sliced its shares in half and cost the company a spot in London's FTSE 250 index .FTMC of medium-sized companies.
EUROPE WOES LINGER
Spain's credit rating was cut by three notches on Thursday amid expectations it may soon seek EU help for banks beset by bad debts.
Sources told Reuters on Friday that Spain is expected to make a request for a financial package for its lenders over the weekend.
UK-listed banks .FTNMX8350, which have large exposure to the euro zone, fell 1.5 percent having added more than 8 percent over the last two trading days.
There was more gloomy data from the euro zone as Germany, Europe's largest economy, showed it is beginning to feel the chill from the region's debt crisis, revealing exports and imports fell sharply in April.
The consistently downbeat newsflow from the euro zone is keeping a lid on equity gains, with the FTSE 100 in bearish territory below the 61.8 percent retracement of a rally that began in December.
"A lot of bad news appears priced in, but global recession isn't. Given uncertainty, policy action/political progress in Europe are needed to drive shares higher," Jonathan Stubbs, analyst at Citigroup, said.
On average, European equities are cheaper than 85 percent of the time in the past 25-100 years, he said.
With doubt swirling around growth and investors in risk-off mode, defensives - companies whose products are required no matter what the economic situation - such as drugmakers, utilities and food and beverage stock dominated the FTSE 100 gainers list.
BSkyB (BSY.L) was the notable exception, up 0.5 percent as JPMorgan raised its target price on the satellite broadcaster to 850 pence from 790 pence, as it sees predominantly positive catalysts for the share.
(Written by David Brett; Editing by John Stonestreet)
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