June 25, 2014 / 3:51 PM / 4 years ago

FTSE hits 2-month closing low as concern grows over Iraq

* FTSE 100 down 0.8 pct, mirrors European pullback

* Miners weaken against “risk-off” backdrop

* Investors still see value in equities

LONDON, June 25 (Reuters) - UK shares fell sharply on Wednesday, mirroring losses across European markets, as escalating violence in Iraq spooked investors.

London’s FTSE 100 index ended down 0.8 percent at 6,733.62 points - its lowest close since April 28. Europe’s FTSEurofirst 300 shed 1 percent.

Security forces are fighting rebels for control of Iraq’s biggest oil refinery and despite the fact that the Brent crude oil price lost ground, equity traders were concerned enough about the situation to take money off the table, with risk-sensitive mining stocks among the hardest hit.

“The thing with the Iraq situation is that it could have further ramifications, particularly if the likes of the U.S. and the UK decide to get involved - particularly militarily. That’s the kind of thing that really gives investors the jitters,” said Hargreaves Lansdown head of equities Richard Hunter.

Meggitt, a manufacturer of aircraft parts, was among the worst performers on the FTSE 100, down 3.2 percent after a downgrade from JPMorgan.

But Shire gained 2.6 percent, the top FTSE 100 riser, as U.S. drugmaker AbbVie declined to rule out a hostile bid for its London-listed peer after its $46 billion takeover approach was rejected.

Shire built on gains seen earlier in the session on a U.S. court endorsement of its patents on top-selling hyperactivity drug Vyvanse.

While analysts and traders reckoned the stock market was susceptible to more falls at the hands of geopolitical concerns or factors such as signs of an economic slowdown in China, they bet on any weakness proving short-lived.

Year-to-date, the FTSE 100 index is broadly flat but still hovering around seven-year highs.

The European Central Bank’s recent move to cut interest rates to record lows and other central banks’ continued commitment to supporting their economies are providing further encouragement for investors to buy into equities as loose monetary policies suppress risk-free returns in other asset classes.

“In a way it’s logical to expect a multiple expansion because all the other asset classes are offering an extremely low yield - so people are coming back to equities not because they like equities but because they dislike everything else,” said Fabrice Theveneau, head of equity research at Societe Generale Corporate & Investment Banking.

SocGen is overweight oil stocks. (Reporting by Tricia Wright and Lionel Laurent; Editing by Janet Lawrence and Pravin Char)

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