* FTSE 100 index finishes 0.5 percent lower
* Ex-divs knock 8.2 points off FTSE 100 index
* Rolls-Royce slips on A350 plane order cancellation
By Atul Prakash
LONDON, June 11 Britain's top share index fell
on Wednesday, pressured by stocks going ex-dividend and a sharp
decline in Rolls-Royce following the cancellation of a
major plane order.
Rolls-Royce dropped 5.5 percent, the top faller in the
blue-chip FTSE 100 index, after Dubai's Emirates
scrapped a $16 billion order for Airbus A350 planes
that are fitted with engines from Rolls-Royce.
British Airways owner IAG also put pressure on the
market, sliding 3.1 percent after rival Lufthansa said
it would not reach its profit targets for the next two years as
competition was suppressing prices on its main European and U.S.
routes. Lufthansa shares slumped 14.2 percent in Frankfurt.
"Airlines are going to face a tough time as competition in
the sector is increasing. Lufthansa's profit warning is a
reminder that the situation is not going to improve in the near
future and their margins might come under further pressure,"
David Battersby, investment manager at Redmayne-Bentley, said.
"However, I continue to be positive on the market and think
that 7,000 for the FTSE 100 by the end of the year is quite
possible. There are a lot of UK companies which are priced
attractively and giving good dividends."
The benchmark FTSE 100 index ended 0.5 percent, or 34.68
points, lower at 6,838.87.
Stocks trading without the attraction of their latest
dividend, namely Johnson Matthey and Vodafone,
accounted for the majority of the FTSE 100's falls, knocking
8.24 points off the index. Vodafone dropped 4.5 percent, while
Johnson Matthey fell 1.3 percent.
Analysts said that investors were losing faith in the idea
that the index, which is less than 2 percent off its record high
set in December 1999, will reach new highs in the near term.
"We think the FTSE 100 feels quite toppy up here - we are
bullish in the medium term but at the moment, with summer
approaching and volumes continuing to be light, we feel as if
there could be some profit taking around these levels," said
Mark Ward, Sanlam Securities' head of trading.
Alpari analyst Craig Erlam said a break below Tuesday's low
of 6,835 would provide the first indication that the index was
headed back towards its 6,800-range lows.
Frothy valuations are preventing investors from putting more
money to work in equities. The FTSE 100 is trading on a 12-month
forward price/earnings ratio of 13.7 times, against its 10-year
average of 11.7 times, Thomson Reuters Datastream shows.
Some analysts said the index will fail to make much headway
until the interim reporting season gets underway, around
"Given the steady grind higher recently we're bumping at the
top of the valuation range. I just think we're still at the
point where we're waiting for the earnings to support that,"
said Peel Hunt equity strategist Ian Williams.
Among gainers, supermarket retailer J Sainsbury
rose 1 percent after its sales update was seen as not as bad as
expected. Sales at its stores open more than a year fell 1.1
percent, excluding fuel, in the 12 weeks to June 7, against a
decline of 3.1 percent in the fourth quarter. Analysts had
forecast a drop of 0.5-1.5 percent.
(Additional reporting by Tricia Wright; Editing by Larry
King/Ruth Pitchford/Susan Fenton)