Sterling weighs on FTSE, Kingfisher shines

LONDON (Reuters) - A jump in sterling weighed on Britain’s major share index on Wednesday, after unexpectedly buoyant retail data for August prompted investors to prepare for an interest rate hike by the Bank of England as early as November.

A worker shelters from the rain under a Union Flag umbrella as he passes the London Stock Exchange in London, Britain, October 1, 2008. REUTERS/Toby Melville/File Photo

With most European stocks trading cautiously ahead of a policy decision by the U.S. Federal Reserve, the FTSE 100 .FTSE ended the day down 0.1 percent as the pound gradually gave back some of its gains.

“The FTSE has suffered yet another day of uncertainty and low confidence, with early gains turning the index into the red ahead”, said Joshua Mahony from the online broker IG, while Paris and Frankfurt ended up 0.1 percent each.

“The release of a strong batch of retail sales figures did little to boost the index”, (whose companies mainly earn in foreign currencies) the market analyst added.

Among stocks, Europe's biggest home improvement retailer Kingfisher KGF.L stole the spotlight, jumping 5.6 percent after its first-half profit beat forecasts.

Kingfisher's shares have sunk more than 10 percent so far this year, underperforming the European retail index .SXRP.

“The stock has become significantly more attractive from a valuation perspective. Arguably it now discounts much of the group’s struggles,” said analysts at Davy Research.

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Investors have reacted well to any good news from retailers facing a raft of structural challenges, and Kingfisher's gains echoed Next's NXT.L surge last week after its first-half results exceeded expectations.

Babcock BAB.L made the strongest gain of the index, up 5.7 percent after the defence contractor posted a trading update saying revenue continued to improve.

Royal Dutch Shell RDSa.AS BP BL.L added the most points to the index, rising 1.2 percent and 0.7 percent respectively.

On the other side of the fence, financials were suffering ahead of the Federal Reserve’s monetary policy announcement.

HSBC HSBA.L, Barclays BARC.L and Lloyds LLOY.L were down 0.7 percent, 1.3 percent and 0.6 percent respectively.

Among other weights on the index, liquor maker Diageo DGE.L fell 2.8 percent after saying first-half sales growth could suffer from a ban on selling alcohol near Indian highways, and the timing of Chinese New Year.

Reporting by Helen Reid and Julien Ponthus; Editing by Hugh Lawson and Toby Davis