LONDON Britain's top share index fell on Friday, the final full trading session before Christmas, tracking falls by U.S. futures as expectations that a deal would be done on the U.S. budget took a knock.
U.S. Republican lawmakers have rejected party leader John Boehner's proposal designed to win concessions from President Barack Obama in the "fiscal cliff" talks, reviving fears of $600 billion worth of tax hikes and spending cuts that could drag the U.S. economy back into recession.
"Everything hinges on the U.S. fiscal cliff talks so I'm not surprised we are seeing falls today, with the risk-off trade pulling miners, oils, and banks lower," Mike Mason, senior trader at Sucden Financial Private Clients said.
"I think one statement credited to Obama sums up the U.S. and indeed the rest of the world's economic problems: 'We are only a couple of hundred billion dollars apart,' he said," Mason added.
Falls by heavyweight miners .FTNMX1770, energy .FTNMX0530, and banking .FTNMX8350 stocks was the main drag on the UK blue chips, with the three sectors together accounting for around 20 points, or half of the FTSE 100's decline.
At 4.08 a.m. ET the FTSE 100 .FTSE index was down 46.53 points, or 0.8 percent at 5,911.81. It closed 0.05 percent lower on Thursday after stalling around nine-month highs in its pursuit of the psychologically important 6,000 points mark.
"Although the short-term outlook is still fairly positive it is possible that market participants could decide that the risk of sudden downside outweighs the chances of a break above 6,000. Key support is at 5,880 or so - a break below that level will suggest that the bulls are cashing in for the holidays," Bill McNamara, technical analyst at Charles Stanley said.
Early volume in London was at 9 percent of the already-low 90-day daily average although volumes were expected to be boosted by the expiry of December index options, due around 5.15 a.m. ET.
Kazakhstan-focused miner ENRC ENRC.L was the top blue chip faller, down 2.9 percent, with traders citing the impact of a downgrade in rating by Goldman Sachs to "neutral" from "buy".
"We believe the stock may trade sideways until the market regains confidence in ENRC's execution … and capital allocation decisions, particularly cash returns to shareholders," Goldman said in a note.
The bank also pointed out that to meet the liquidity requirement to maintain inclusion in the FTSE 100 index, ENRC must make a share placement in 2013, raising cash but also weighing on its share price in the near term.
There were only eight blue chip gainers in early morning trade, all stocks seen as defensive plays, with water companies making up the top three FTSE risers following modified license proposals from regulator Ofwat.
Multi-utility Pennon, the biggest gainer up 2.0 percent, said its South West Water unit welcomed significant changes which Ofwat has made relating in particular to the next price review process in 2014.
(Reporting by Jon Hopkins; editing by Patrick Graham)