* Blue-chip FTSE 100 index falls 0.3 percent
* Miners, banks feature among top decliners
* Babcock International slips on rights issue
By Atul Prakash
LONDON, March 27 Britain's top stock index fell
on Thursday, with miners leading the retreat on lingering
concerns their earnings could be hurt by weaker metals prices
following an economic slowdown in China and improving supplies.
Banks also lost ground after the Federal Reserve blocked the
U.S. units of Royal Bank of Scotland and HSBC
from paying higher dividends or buying back their own shares,
citing weaknesses in their capital planning.
Among sharp individual movers, defence support and
engineering services group Babcock International topped
the losers' list. It fell 6.7 percent after saying it had agreed
to acquire helicopter transport services firm Avincis, funding
the deal with a 1.1 billion pound rights issue.
Miners and banks, the two heavyweight sectors, took the most
points off the FTSE 100 index, which closed 0.3 percent
lower to 6,588.32 points and is down 3.3 percent this month.
The UK mining index fell 0.7 percent, taking
total losses this month to nearly 6 percent on concerns that
earnings of mining companies might disappoint in coming quarters
due to pressure on prices of major metals.
"The outlook for commodity prices has changed quite
substantially as the supercycle that we saw in China is coming
to an end," said Henk Potts, strategist at Barclays Wealth.
"There has been a huge amount of investment in the mining
sector during the boom years and that supply is just about to
come through at a time when demand has been slowing down."
Precious metals miner Fresnillo dropped 4 percent,
Randgold Resources fell 2.6 percent and Rio Tinto
slipped 0.9 percent.
FINANCIALS UNDER PRESSURE
Financials were the second-biggest drag on the market after
miners, with the banking index down 0.4 percent.
Royal Bank of Scotland and HSBC were down 1.4 percent and 0.5
percent respectively following the Fed's rejection of their
request for higher dividends.
Under the Fed rules, foreign banks will have to wall off
their U.S. units and meet tougher capital requirements. Some
traders said discussions about the U.S. stress tests were not
over, however, so the banks could get off more lightly.
"It's a watching brief for UK banks ... but with any further
downside they're likely to attract buyers," said Matt Basi, head
of sales trading at CMC Markets.
"All of these things are done by negotiation, so it's not a
case of HSBC and RBS making a proposal, the Fed saying no, and
that being the end of it. It's a back-and-forth process, and we
expect there to be a resolution at some stage in the near-term."
The sector also came into focus after the Bank of England
urged banks to consider the risk of future spikes in interest
rates when approving mortgages, and prepared tools to rein back
potentially dangerous lending.
Despite recent weakness in British equities, analysts said
the market outlook remained positive.
"Longer-term, there is still an increased appetite for
equities. We like the energy sector because it is unloved,
attractively valued, has got a very good dividend yield and
there has been a re-focus on greater capex discipline, which is
more shareholder friendly," said James Butterfill, global equity
strategist at Coutts.
"We also like the pharmaceuticals sector, which is a good
defensive play and has got attractive dividend yields."
According to Thomson Reuters Datastream, dividend yield for
the British energy sector was 4.3 percent against a 10-year
average of 3.6 percent. The pharmaceutical sector's dividend
yield was now 4.1 percent, better than a long-term average of
(Additional reporting by Tricia Wright; Editing by Catherine