FTSE hits 3-week low, caution ahead of U.S. jobs data

Fri Aug 1, 2014 4:42am EDT

* FTSE 100 index falls 0.7 percent

* Caution before U.S. non-farm payrolls data

* IAG top gainer after earnings report

By Atul Prakash

LONDON, Aug 1 (Reuters) - Britain's top share index slipped to a three-week low on Friday, tracking steep losses on Wall Street, with investors trimming their trading positions ahead of U.S. jobs data that could provide hints about the timing of a rate hike.

After this week's strong growth data from the United States, investors' focus has shifted to U.S. jobs data, due at 1230 GMT. Non-farm payrolls are predicted to have risen by 233,000 in July, which would mark the sixth month with job growth above 200,000.

Some analysts predicted a higher number, with Societe Generale forecasting that 280,000 net new jobs were created during the month. A stronger number would spark concerns that the U.S. Federal Reserve could raise interest rates sooner than some have expected.

"I'd expect a slightly stronger than consensus number," Jeremy Batstone-Carr, head of private client research at Charles Stanley, said. "However, a weak number could encourage the market into believing that the Fed will hold off from an earlier rate hike."

The blue-chip FTSE 100 index was down 1 percent at 6,663.94 points by 0839 GMT, its lowest since early July, extending opening falls after the release of weaker than expected UK manufacturing survey data. The index ended 0.6 percent lower on Thursday, hours before the U.S. equities closed about 2 percent lower.

Cyclical shares such as miners, energy and banks were hard hit on concerns that an earlier than expected U.S. rate hike could hurt the sectors. The UK banking index fell 1 percent, while miners dropped 1.8 percent. Global diversified miners Rio Tinto and BHP Billiton fell 2.1 percent and 1.6 percent respectively.

Miners fell despite data showing China's vast factory sector posted its strongest growth in 18 months in July. Generally, miners react positively to strong economic data from China, which is the world's biggest metals consumer.

"Another set of strong manufacturing PMI data from China did little to dispel the overall bearish sentiment which has taken hold since yesterday across major stock markets around the world," Markus Huber, senior analyst at Peregrine & Black, said.

"Another strong (U.S. non-farm payroll) report would certainly increase fears dramatically that the Fed might be forced to act on interest rates much earlier than previously thought with a possible rate rise on the cards as early as the end of 2014/beginning of 2015."

Losses in the broader market, however, were capped by strong gains by some companies after their earnings reports.

The British Airways owner International Airlines Group climbed 2.7 percent, the top gainer on the FTSE 100 index, after reporting first-half operating profit before exceptional items of 230 million euros ($308 million) and reiterated full-year guidance.

IMI, a supplier of flow-control systems, rose 0.9 percent after raising its interim dividend to 13.6 pence per share from 12.8 pence a year earlier and saying it expected to double its full-year 2014 operating profit over the five years that follow. (Reporting by Atul Prakash; Editing by Toby Chopra)

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