* FTSE 100 down 0.7 percent
* BAE Systems drops on forecast earnings decline
* Miners hit by slide in China's factory activity
* Vedanta Resources top mid-cap faller after HSBC downgrade
By Tricia Wright
LONDON, Feb 20 Britain's top shares lost ground
on Thursday, led down by BAE Systems on a forecast
earnings decline, while data showing a drop in China's factory
activity knocked the miners.
The mood was also darkened by minutes of the U.S. Federal
Reserve's latest policy-setting meeting, which indicated that
the central bank would keep trimming its bond-buying stimulus
unless there were a significant economic surprise.
Defence contractor BAE Systems sank 9.1 percent in brisk
trade after it cautioned that continuing U.S. budget pressures
could reduce earnings per share by 5-10 percent this year.
BAE systems receives 44 percent of its revenue from the
"Awful headline figures from BAE Systems this morning," said
Jordan Hiscott, senior sales trader at Gekko Global Markets.
"As Western governments withdraw their military assets and
needs from deployments in Iraq and Afghanistan, defence cuts
could become more prevalent in the sector - this is undoubtedly
being highlighted in the figures this morning."
Hiscott saw scope for a further near-term drop in BAE
Systems to 373 pence, the low from April 2013 which has acted as
firm support, some 6 percent below current levels.
Trading volume in BAE stood at nearly 100 percent of its
90-day daily average, against the FTSE 100 of just 14
The UK blue-chip index was down 43.98 points, or 0.7
percent, at 6,752.73 points by 0851 GMT, trimming its rally
since an early February low to around 5 percent.
This leaves the index nearly 2 percent shy of a peak hit in
late January, before political and economic concerns in emerging
markets took their toll on equities.
Miners exerted the most downward pressure on
the index, down 1.8 percent, after activity in China's factories
shrank again in February, a preliminary private survey found,
reinforcing concerns of a minor slowdown in the economy.
The health of the Chinese economy is a key factor for the
FTSE 100, given the mining sector's heavy weighting. It is the
fifth biggest sector on the UK benchmark, accounting for around
8 percent of the index, Thomson Reuters data shows.
Vedanta Resources was the standout faller on the
mid-cap FTSE 250 index, down 6.8 percent, further hit by
a downgrade to "underweight" from "neutral" by HSBC, which cited
sluggish cash flow generation.
"We think pricing in a recovery is premature," analysts at
HSBC wrote in a note.
"Although Vedanta's structure was significantly simplified
with the merger of its Indian subsidiaries Sesa Goa and Sterlite
Industries in 2013, we think cash flow to VED remains more
constrained than the market anticipates."
Still, the sector has got off to a solid start this year, up
nearly 8 percent, against a flat showing on the FTSE 100. Mining
firms are recovering from a sharp decline in 2013, after a
sector-wide drive to offset falling metals demand with cuts in