Britain's FTSE edges lower; HSBC, Tesco hurt by stake sales

Mon Sep 1, 2014 7:12am EDT

* FTSE 100 down 0.1 pct

* HSBC, Tesco hit as key shareholders cut stakes

* New York stock market closed for public holiday

* BAE Systems boosted by BofA ML upgrade -traders

By Tricia Wright

LONDON, Sept 1 (Reuters) - Britain's top equity index edged lower on Monday, pressured by weakness in bank HSBC and supermarket retailer Tesco after key shareholders sold stakes.

HSBC knocked 4.5 points off the UK benchmark, accounting for all of its fall, after one of Britain's most high-profile fund managers, Neil Woodford, said he had sold his fund's stake in the banking group. He cited concerns over the potential impact on the company of several industry-wide probes.

"In particular, I am worried that the ongoing investigation into the historic manipulation of Libor and foreign exchange markets could expose HSBC to significant financial penalties," Woodford said in a blog posting on his fund's website.

CF Woodford Equity Income Fund had 2.68 percent of its assets in HSBC shares at the end of July, according to the fund's factsheet.

Woodford - who left Invesco Perpetual earlier this year to set up his own company - acknowledged that the size of any potential fine was unquantifiable, but said a substantial fine could hamper HSBC's ability to grow its dividend.

Tesco shed 1.7 percent after slumping 6.6 percent on Friday, when it slashed its dividend after its second profit warning in two months.

Tesco took another hit on Monday after Harris Associates, one of its largest shareholders, sold around two-thirds of its stake in the company. Its share price fall also weighed on rivals such as J Sainsbury and Wm Morrison, whose stock prices also weakened.

"There is negative pressure building up on Tesco's shares. The dividend is going to become an issue and there is pressure on the management to review its strategy, because it's clearly not working," Beaufort Securities sales trader Basil Petrides said.

The FTSE 100 index was down by 3.32 points, or 0.1 percent, at 6,816.43 by 1050 GMT. Trading volumes were only around a quarter of its 90-day daily average by mid-session and were expected to remain thin, with New York closed for a public holiday.

The FTSE 100 hit a peak of 6,894.88 points in mid-May, which marked its highest level in more than 14 years. But it has not yet passed the 6,900 point mark, considered a key hurdle before the FTSE can challenge record highs around 7,000 points.

Although the FTSE and other European stock markets have been propped up in recent months by expectations of new economic stimulus measures from the European Central Bank, some traders were wary about betting on big near-term gains.

"I would look to sell into rallies at the moment," said Berkeley Futures' associate director Richard Griffiths.

Among brighter spots, BAE Systems advanced 2.8 percent, topping the blue-chip leader board, with traders citing the impact of a BofA Merrill Lynch upgrade on the defence firm to "buy" from "underperform".

(Additional reporting by Sudip Kar-Gupta; Editing by Catherine Evans)

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