LONDON (Reuters) - British blue chips dipped on Thursday, edging down towards recent six-month lows as a surge in Spanish bond yields to record highs served as a reminder of the problems in top trading partner the euro zone.
Heavyweight miners .FTNMX1770 led the retreat, tracking weaker copper and gold prices as investors fretted about the impact of the crisis on global economic growth and thus demand for metals.
Credit ratings agency Moody’s slashed its rating on Spain by three notches, saying the newly-approved euro zone rescue plan for the country’s banks will increase the sovereign debt burden. Spain’s 10-year bond yields hit a euro area record of 7 percent - a psychologically key level, whose breach in Greece, Portugal and Ireland was fairly swiftly followed by bailout requests.
“I don’t think the equity market can take much more if the peripheral bond yields keep going up, and now we’ve flipped 7 percent in Spain,” said Andy Ash, head of sales at Monument Securities, adding that in the current environment there was no “safe” place for equity investors.
“I think we are more likely to go down and test the lows again, on the FTSE 5,230.”
The FTSE 100 .FTSE was down 0.5 percent, or 25.60 points, at 5,458.21, wiping out its gains from earlier in the week and just over 200 points above a six-month low plumbed on June 1.
Strategists at Day By Day said the index would need to break below 5,405 for the technical picture to turn negative.
From a fundamental viewpoint, investors are likely to remain cautious until at least after the weekend, which sees Greece try for a second time to elect a government, the make-up of which may determine whether it stays in the euro zone.
“Right now we are faced with the uncomfortable combination of extremely oversold markets and a number of signals telling us it is right to panic,” Robert Farago, head of asset allocation at Schroders Private Banking, said in a monthly outlook note.
“This leaves us poised for a rapid rebound if anything is done to restore confidence but vulnerable to accelerating downside if authorities remain on the sidelines.”
There was no major UK data to distract investors from the euro zone crisis.
One spot of interest in a fairly light corporate newsflow was BSkyB BSY.L, which dropped 6.7 percent to become the biggest faller on the FTSE 100 for the day.
The satellite broadcaster paid more than expected to broadcast most of the English Premier League soccer matches in a new three-year deal. Shares in telecoms operator BT (BT.L), which won the right to show some of the games and competition from whom was seen as the reason for the higher price tag, fell 2.8 percent.
“We got it wrong on Premier League rights - 40 percent inflation blew out our expectations of flat costs,” strategists at Deutsche Bank said, cutting their target price for BSkyB to 860 pence from 900 pence, but reiterating a ‘buy’ rating as that still implies an upside of some 26 percent from current levels.
Reporting By Toni Vorobyova; editing by Stephen Nisbet