UK stocks hit by Vodafone, banks, miners weakness

Tue Jan 22, 2013 7:23am EST

* FTSE 100 down 0.1 percent, just off 4-1/2 year highs

* Vodafone falls; U.S. partner Verizon posts Q4 loss

* Banks lower, tracking falls by German peers

* Miners weak; Fresnillo down after Q4 update

By Jon Hopkins

LONDON, Jan 22 (Reuters) - Falls by market heavyweight Vodafone, banks and mining stocks pulled Britain's top shares lower on Tuesday, with the index slipping back from its highest level in four-and-a-half years.

Falls by Vodafone alone knocked over 3 points off the FTSE 100 index, with the mobile telecom group down 1.2 percent, as its U.S. wireless joint venture partner Verizon posted a fourth quarter loss.

Traders also attributed Vodafone's decline to a price target cut by Jefferies International.

At 1200 GMT, the FTSE 100 index was down 5.18 points, or 0.1 percent at 6,175.80 points, retreating after having hit a fresh 2013 peak at 6,184.02 in early trade.

Banks were the main sector fallers, also taking over 3 points off the blue chip index, with traders citing caution over a report that several German banks had been asked to simulate a split of their investment banking operations.

As well as the report in Germany's Boersenzeitung newspaper, several traders also cited vague talk that Deutsche Bank could issue a profit warning.

Among weaker miners, Mexican silver miner Fresnillo was the biggest FTSE 100 percentage faller, dropping 3.8 percent after saying it saw stable silver output in 2013 and reiterating it wanted to increase the free float in its shareholding.

"There is nothing intrinsically bad in today's production report from Fresnillo, apart from the lower ore grades at the Cienega facility. However a lot of the statement refers to 'jam tomorrow' work in progress, such as the Herradura, Saucito and San Julian facilities, added to which the company is engaged in ongoing cost control operations to battle inflation in operating materials," Richard Curr, head of dealing at Prime Markets said.

"Arguably, Fresnillo has traded ahead of events since September last year, and in spite of the fall in the share price since December, Prime Markets believe a retest of 200-day moving average support looks almost inevitable, after which a period of consolidation is expected as the new facilities come onstream.

Among other individual fallers, media group Pearson fell sharply for the second day in a row, off 1.3 percent as brokers cut their targets on the company after the media group reported earlier this week a fall in earnings and warned of another tough year.

Deutsche Bank cut its price target on Pearson to 1,325 pence from 1,350 pence, while Jefferies reduced its price target to 1,290 pence from 1,315 pence. Both Deutsche Bank and Jefferies kept "hold" ratings on Pearson shares.

ALLOCATION REDUCED

Credit Suisse has reduced its allocation in UK equities, saying the relatively defensive market tends to lag in times of economic recovery, but it retains an "overweight" stance on the market, still seeing opportunities in exporters and real estate.

"The FTSE 100 is a defensive market by sector composition and thus tends to underperform when economic lead indicators and global equity markets rise," Credit Suisse said in a global strategy review.

Stocks perceived as defensive provided the main underlying strength for the market, with drugs, drinks, and utilities stocks in demand.

Investec Securities provided a lift for the utilities as it initiated coverage on the sector with "buy" recommendations on Centrica, Pennon Group and United Utilities .

"Overall, we believe that the Utilities sector continues to be a 'Steady Eddie', performing as it should in uncertain markets ... By definition, the sector is likely to underperform when the market finally gains momentum, but we remain confident that there is still some very good value there, backed up by solid yields," Investec said in a note. (Reporting by Jon Hopkins; editing by Ron Askew)

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