Miner fall pushes Britain's FTSE into a retreat, BAE tanks

Thu Feb 20, 2014 6:52am EST

* FTSE 100 down 0.2 percent

* Miners hit by slide in China's factory activity

* BAE Systems drops on forecast earnings decline

By Alistair Smout

LONDON, Feb 20 (Reuters) - Britain's top shares lost ground on Thursday, hit by miners after a survey showed a drop in China's factory activity, while BAE Systems slid after forecasting a decline in earnings this year.

Investors found little respite in the minutes of the U.S. Federal Reserve's latest policy-setting meeting, which indicated that the central bank would keep trimming its bond-buying stimulus despite recent weakness in economic data.

Basic materials stocks, including miners, exerted the most downward pressure on the index, trimming 9.3 points off the index after data from China reinforced concerns of a minor slowdown in the economy.

Activity in China's factories shrank again in February, a preliminary private survey found, spooking markets across the region.

"Economic growth in China is slowing still because of tight monetary policy, and it won't change until they ease policy," Gerard Lane, equity strategist at Shore Capital, said.

"The pudding being eaten by the market at the moment is one that has been baking for quite a while. At the moment, China remains a negative story."

Defence contractor BAE Systems sank 8.2 percent in brisk trade after it cautioned that continuing U.S. budget pressures could reduce earnings per share by 5-10 percent this year.

BAE systems receives 44 percent of its revenue from the United States.

"Awful headline figures from BAE Systems this morning," said Jordan Hiscott, senior sales trader at Gekko Global Markets.

"As Western governments withdraw their military assets and needs from deployments in Iraq and Afghanistan, defence cuts could become more prevalent in the sector - this is undoubtedly being highlighted in the figures this morning."

Trading volume in BAE stood at nearly 200 percent of its 90-day daily average, against the FTSE 100 of just 34 percent.

The UK blue-chip index was down 19.38 points, or 0.3 percent, at 6,777.33 points by 1124 GMT, trimming its rally since an early February low to around 5.1 percent.

This leaves the index nearly 1.3 percent shy of a peak hit in late January, before political and economic concerns in emerging markets took their toll on equities.

"The main risk at the moment comes from emerging markets, and the likes of Unilever and Diageo have been impacted more than some of the domestically exposed names," Shore Capital's Lane said.

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