* FTSE 100 down 0.5 pct
* Yellen comments on valuations take toll on equity markets
* Weak German investor morale also hurts sentiment
* Imperial Tobacco down, to buy Reynolds/Lorillard brands
* Housebuilders fall, UK inflation takes surprise jump
By Tricia Wright
LONDON, July 15 Britain's top shares lost ground
on Tuesday after U.S. Federal Reserve Chair Janet Yellen voiced
concern over valuations. Housebuilders were hit by growing
expectations UK interest rates will soon rise, while Imperial
Tobacco fell sharply.
In the monetary policy report accompanying her Congressional
testimony, Yellen said, "equity valuations of smaller firms as
well as social media and biotechnology firms appear to be
In the United States, the Russell 2000 small-cap index
lost more than 1 percent and the Global X Social Media
ETF shed almost 2 percent.
The UK's FTSE 100 closed down 35.69 points, or 0.5
percent, at 6,710.45 points as the comments from Yellen prompted
closer scrutiny of valuations more broadly. The index was also
hurt by German investor morale data, which dropped to its lowest
in 1 1/2 years in July.
Imperial Tobacco sank 3.7 percent, making it the top FTSE
100 decliner, following news that Reynolds American
would buy rival Lorillard and sell brands to the British
cigarette maker to address antitrust issues.
Reynolds said it would sell its Kool, Salem and Winston and
Lorillard's Maverick and blu eCigs brands and other assets to
Imperial Tobacco for $7.1 billion in cash.
Following the announcement concerning the brand and asset
disposals, credit rating agency Fitch revised its outlook on
Imperial Tobacco to negative from stable.
"Fitch views positively the enlargement of Imperial's U.S.
operations but at the same time notes that failure to enhance
the cash flow generation and profit growth capability of its
core European business would seriously impair credit metrics,"
Shares in housebuilders, volatile in recent weeks, came
under pressure as a report on Tuesday showed British inflation
unexpectedly rose to a five-month high in June.
Barratt Developments fell 2.2 percent. Mid-caps
Redrow and Taylor Wimpey fell by 3.7 percent and
2.9 percent respectively.
"The feeling seems to be that interest rates could
potentially go up sooner than the market expects, given the way
that the inflation data was reported," said Manoj Ladwa, head of
trading at TJM Partners.
Housebuilders sold off in mid-June when Bank of England
Governor Mark Carney said rates may rise sooner than markets
were predicting. They recovered towards the end of the month
when the BoE imposed measures aimed at curbing house prices that
turned out to be more lenient than the builders had feared.
Carney said on Tuesday the central bank's forward guidance
was intended to signal how interest rates might change over the
medium term, not pinpoint the timing of a first hike.
(Reporting by Tricia Wright; Editing by Catherine Evans)