UK FTSE set for biggest drop of 2014 on weak U.S. data

Thu Jan 23, 2014 11:08am EST

* FTSE 100 down 0.9 pct, set for biggest daily fall in 6 weeks

* Index extends losses after weak U.S. data

* Pearson suffers biggest daily fall in 12 years after update

By Francesco Canepa

LONDON, Jan 23 (Reuters) - Britain's main equity index was set for its biggest one-day fall this year on Thursday, weighed down by disappointing U.S. economic data and weak updates from Easyjet and Pearson.

The FTSE 100 extended losses in the afternoon as data showed U.S. manufacturing growth slowed in January for the first time in three months, further denting sentiment about the world's largest economy after discouraging earnings reports from bellwether companies such as McDonald's Corp.

The FTSE 100 was down 60.11 points, or 0.9 percent to 6,766.22 points at 1555 GMT, on course for its biggest daily loss since Dec. 12 and slipping further away from an eight-months high of 6,867 points hit on Tuesday.

The FTSE is still up roughly 5 percent since mid-December, boosted by flows of money into Europe in light of better-than-expected data in Britain and the euro zone, which are responsible for half of the sales generated by UK blue chips.

"We are holding our longs at the moment as we feel the UK markets are looking stronger than the U.S.," Ed Woolfitt, head of trading at Galvan, said.

The FTSE fell in just eight of the last 24 trading days and each dip was followed by a stronger bounce in the index over the following few days. Some traders bet this time will be no different.

"All the little moves (down) ended up being bought so it's likely that it will be the same case here, albeit this one is a bit more dramatic," Giles Watts, head of equities at City Index, said.

Watts still expected the FTSE to head towards an all time high of 6,950 set in late 1999.

Shares in Pearson plunged 8.2 percent, their biggest fall in 12 years, after the publisher reported big restructuring charges alongside weak demand in its education businesses in North America and Britain.

"There are a lot of structural pressures on the business and we don't see any sort of mitigation of these pressures near-term," said Investec analyst Steve Liechti, who put his estimates, price target and recommendation for the stock under review after the update.

Easyjet was also among the top fallers, off 3.9 percent after the budget airline guided that first half seasonal losses would be higher this year than last year due to the timing of Easter, which falls in its fiscal second half.

"At the minute people are just trying to get out. Some of the longer term players are taking profits (on Easyjet)," said Vinay Sharma, trader at Gekko Global Markets.

Basic materials knocked a further 3.4 points off the FTSE as data showed activity in China's factory sector contracted in January for the first time in six months, according to the Markit/HSBC PMI, pointing to a weak start in 2014.

Robert Quinn, chief European equity strategist at S&P Capital IQ, said he preferred continental European indexes to the FTSE in light of the latter's larger weighting in basic materials, energy and consumer staples stocks. All of those sectors are expected to suffer from an ongoing economic slowdown in emerging markets.

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