Mining stocks extend losses on China concerns

LONDON (Reuters) - London-listed mining shares fell further on Tuesday to record their biggest one-day slide in six months on lingering concerns that slower growth and lending curbs on the property sector in China would hurt metals demand.

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The UK mining index dropped 2.6 percent, the biggest sectoral decliner and tracking losses in metals prices, with major mining companies such as Rio Tinto, BHP Billiton and Fresnillo falling 1.8-3.4 percent.

The index, which fell 1 percent on Monday, has dropped about 5 percent in less than a week on concern over banks in China, the world’s top metals consumer, tightening loans to property developers and sectors like steel, cement and construction.

However, analysts remained positive on the sector’s longer-term outlook and saw current weaknesses in mining shares as a buying opportunity.

“The metals and mining sector is very much driven by developments in China. Recent newsflow from China hasn’t helped as it fuelled concerns regarding slower growth in the country,” Robert Parkes, equity strategist, HSBC Securities, said.

“But we think that Chinese growth is going to be more resilient than the market thinks. We like the sector as valuations are looking attractive, the global business cycle is slowly improving and the earnings momentum is more positive.”

Of the top seven fallers on the FTSE 100 index, five were mining stocks. However, the UK mining index, which fell 16 percent last year, is still up more than 5 percent this year, outperforming the broader stock market.

“China is absolutely crucial to marginal demand for industrial metals,” Macquarie strategist Daniel McCormack said.

“But I would probably use the recent pullback as an opportunity to accumulate mining stocks. The earnings momentum has turned, the sector is cheap and is pricing in a weakness in commodity prices. It’s a sector that investors have been away from, but are increasingly looking at it now. So it could benefit from fund flows also,” he said.

Weaker miners put pressure on the blue-chip FTSE 100 index, which snapped a seven-session winning run. The benchmark index, which touched its highest close in 14 years on Monday, was down 0.8 percent at 6,808.11 points by 1607 GMT. The UK banking index fell 1.3 percent.

Traders said the FTSE 100, which came within striking distance of its record high scaled 14 years ago this week, also witnessed a technical sell-off.

“Many stocks have become overbought and it’s not hard to argue that now is a good time to take some profit. These major resistance areas are rarely overcome at the first attempt and some consolidation would not be a bad thing in the short term,” Bill McNamara, technical analyst at Charles Stanley, said.

The FTSE 100’s relative strength indicator (RSI) reading on a 14-day basis touched 70 on Monday. If a market has an RSI above 70, it indicates it is technically “overbought” and often results in a pullback.

Among sharp movers, Irish building supplies group CRH climbed 5.3 percent after the company, which posted full-year earnings ahead of guidance, said it expects the restructured business to boost margins and return to profit growth this year.

Additional reporting by Sudip Kar-Gupta; Editing by Susan Fenton