FTSE knocked by falling commodity shares

LONDON (Reuters) - UK shares underperformed Europe stocks on Tuesday, giving up early gains after a drop in commodity-related items intensified and banks turned lower following the Bank of England’s latest financial stability report.

People walk through the lobby of the London Stock Exchange in London, Britain August 25, 2015. REUTERS/Suzanne Plunkett

The blue-chip FTSE 100 index .FTSE was down 0.58 points, flat in percentage terms, at 6,105.90 points by the close, lagging blue-chip euro zone stock market indexes.

The top fallers were mining companies, with Glencore GLEN.L, Antofagasta ANTO.L, Anglo American AAL.L, Rio Tinto RIO.L and BHP Billiton BLT.L all down between 3.2 percent and 4.9 percent, tracking a dip in the price of copper.

Metal prices fell after the dollar strengthened ahead of a speech by Federal Reserve chair Janet Yellen, who could signal interest rate hikes later this year.

Oil and gas stocks also took a hit after Brent crude fell over 3 percent, below $40 a barrel. In all, energy and basic material shares trimmed 20 points off the FTSE 100.

Bank shares turned lower after opening the session with gains.

The banking sector .FTNMX8350 fell 0.9 percent after the central bank said the outlook for financial stability had worsened since its last quarterly report in November, and it also moved ahead with plans to require some banks to hold extra capital as lending growth started to pick up.

“There had been a sense that given the pressure the banks have come under this quarter, the BOE would go easy on them. That quickly unravelled when the financial stability report was published,” said Jasper Lawler, market analyst at CMC Markets, in a note.

Some financials managed gains, however, with insurance stocks in demand. Both Deutsche Bank and Barclays raised their target prices on RSA Insurance RSA.L, sending its shares up 1.6 percent. Aviva AV.L and Standard Life SL.L also gained.

“Those moving higher, Aviva, Standard Life, (are) the usual suspects where the yield play is concerned so there seems to be the end of the month bounce coming through in these stocks,” Chris Beauchamp, analyst at IG, said.

Shares in Next NXT.L steadied after a 15 percent fall in the previous session. They edged 0.4 percent lower as brokers weighed in after Next cut guidance last week, even as it delivered earnings in line with expectations.

Goldman Sachs and Canaccord Genuity were among brokers to downgrade the stock to “hold” from “buy” after the poorly received update, although analysts at Deutsche Bank said the falls had gone too far and raised their rating to “buy” from “hold”.

The fashion retailer was the most heavily traded stock in the FTSE 100 on a miserly day for volumes on the broader market. It saw nearly double its 90-day average volume, while the FTSE 100 saw less than 70 percent of its average trade on the first day back after a long Easter weekend.

Editing by Mark Heinrich