FTSE down as U.S. sentiment weighs; BoE eyed

By Michael Taylor

LONDON, Aug 1 (Reuters) - The FTSE 100 .FTSE of Britain's leading shares ended 1.7 percent lower on Wednesday as the U.S. credit crisis continued to weigh and as traders looked ahead to the Bank of England's (BoE) interest rate decision on Thursday.

The FTSE 100 ended down 109.5 points at 6,250.6, having earlier hit a session low of 6,187.2.

Subprime mortgage woes from the United States pushed numerous sectors deep into negative territory with banks, miners and oil companies hardest hit.

Top losers on the day included BHP Billiton (BLT.L), Xstrata (XTA.L), Rio Tinto (RIO.L), and Lonmin (LMI.L).

Among banks, Northern Rock NRK.L dropped 4.4 percent and HSBC (HSBA.L) shed 1.5 percent despite Citigroup raising the latter's rating to "buy" from "hold" and price target to 1,050 pence from 1,000 pence.

HBOS HBOS.L, Britain's biggest mortgage lender, dipped 2.8 percent. It unveiled a 13 percent jump in profits and its biggest dividend rise since it was formed six years ago but problems in its core UK retail unit hit its shares.

"It's the overnight news from the U.S. which has set the tone for the market all day," said Dresdner Kleinwort strategist Philip Isherwood. "We're really just waiting to see what the actual direction for the U.S is going to be. It's as good as it gets on the U.S."

"The story overnight was effectively driven by more bad news coming out of the U.S. housing sector both in terms of insurance companies ... and a mortgage provider unable to support their loans," Isherwood added. "Generally speaking, it is the extended credit in the U.S. housing market. The market doesn't like the risk."

Cadbury (CBRY.L), the world's biggest confectionery maker, topped the loserboard after it reported a drop in first-half profitability amid rising dairy prices and said the sale of its North American soft drinks business was still in the balance.

Cadbury said last week it was postponing the sale of its North American soft drinks business, whose brands include Dr Pepper, 7UP and Snapple, because of turbulent debt markets. Its share price lost 8.2 percent.

Hedge fund firm Man Group (EMG.L) fell 5.5 percent on the negative U.S. sentiment and after it said on late Tuesday that the net asset value of its closely watched AHL managed futures strategy fell 6.79 percent over the last week.

"The U.S. is providing a slow-motion example of what happens when higher interest rates start to hurt in an over-borrowed economy -- is the UK the same? It doesn't matter, very few markets are being able to ignore what is happening in the U.S."

On the economic agenda, the BoE started its two-day policy meeting and will announce its rate decision at 1100 GMT on Thursday. Economists see rates rising to 6.0 percent by the year end, but the majority do not see this happening in August.

BRITISH AIRWAYS FINED

In individual stocks, British Airways (BAY.L) lost 2.9 percent after it was hit with almost 270 million pounds ($547 million) in fines from U.S. and UK authorities for price fixing on fuel surcharges.

Archrival Virgin Atlantic Airways [VA.UL] blew the whistle on BA last year after individuals at the two carriers discussed proposed changes to fuel surcharges for long flights.

Virgin won immunity in Britain, where the Office of Fair Trading (OFT) fined BA 121.5 million pounds in the OFT's biggest-ever civil penalty.

The U.S. Department of Justice fined BA 300 million dollars (148 million pounds) as part of a wider investigation that also resulted in a fine for Korean Air Lines (003490.KS) and notice that Virgin and Germany's Lufthansa (LHAG.DE) would have to pay restitution to customers.

Among the seven FTSE 100 shares to feature on the upside, Shire (SHP.L) added 1.6 percent as investors saw it as the ideal pick in the defensive healthcare sector. Rival GlaxoSmithKline (GSK.L) was flat.

Chemicals group ICI ICI.L gained 0.6 percent on a newspaper report that U.S. rival Dow Chemical (DOW.N) was interested in the group, already the subject of an approach from Akzo Nobel (AKZO.AS).

BAE Systems Plc BA.L tacked on 0.2 percent after it said late on Tuesday that it had completed its acquisition of Armor Holdings (AH.N) after receiving all required regulatory approvals and approval from Armor's shareholders.

"The acquisition expands the company's business in the United States and strengthens BAE Systems' position as one of the world's leading land systems businesses," BAE said in a statement to the London Stock Exchange.

(Additional reporting by Dominic Lau, Ana Nicolaci da Costa and Rebekah Curtis)