Weak Smiths, Tullow set FTSE on track for weekly loss

Fri May 23, 2014 6:56am EDT

* FTSE 100 slips 0.3 pct, set for largest weekly loss since April

* Tullow, Smiths lead fallers after disappointing updates

* EU vote uncertainty cap shares across Europe

By Francesco Canepa

LONDON, May 23 (Reuters) - Britain's top equity index slipped on Friday towards its biggest weekly loss in over a month, led by selloffs in oil group Tullow and engineer Smiths Group after disappointing updates.

Appetite for European shares has been sapped by uncertainty over the outcome of EU parliamentary elections, in which strong performances by eurosceptic parties could undermine governments' efforts to move towards greater integration.

Shares in Tullow fell 1.5 percent as the oil explorer said one of its wells in Ethiopia hit water. The stock has lost more than a third of its value since 2013 following a string of disappointing exploration updates.

"It's another disappointing result in East Africa for Tullow and the market, in our view, already prices in success above the existing discoveries in this region," Brian Gallagher, an analyst at Investec, said.

"This mean that Tullow needs to start finding the mark soon or the upside assumption could soon be challenged."

Smiths Group warned that full-year profit in its detection unit would be 25 million pounds ($42 million) lower due working capital adjustments, lower volumes and additional costs. Its stock fell 1.1 percent.

Societe Generale cut its target price on Smiths Group following the announcement and said solving "operational shortcomings" at the detection unit would likely take time.

Volume in Smiths Group's shares was 55 percent of its average for the past three months, compared to FTSE volume of less than 20 percent, with many traders away ahead of a long weekend in Britain and the United States.

The FTSE 100 was down 0.3 percent at 6,801.27 points at 1021 GMT, setting it on track for a 0.8 percent fall on the week, the steepest since April 10.

EU ELECTIONS

Shares in Italy and Greece likely to come under fire in the coming days if eurosceptic parties gain ground in the European polls.

"The effect on the UK markets is to exacerbate the traditional risk-off into a long weekend, especially when the U.S. is also off," Mike van Dulken, head of research at Accendo Markets, said.

The market shrugged off early indications that Britain's anti-EU UKIP party had made widely anticipated gains in local elections.

"UKIP may win the European parliament elections by tapping into anti-EU, anti-immigration sentiment," analysts at Berenberg wrote in a note.

"But that is a protest vote. European election voter turnout is low, the parliament is of limited relevance, and governments often get a kicking in mid-term elections." (Additional reporting by Sudip Kar-Gupta; Editing by John Stonestreet)

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