FTSE Close: Vedanta, Kazakhmys, BP down

By Adrian Lowery
Updated: 12:29 EDT, 24 August 2010

17.10 (close)

Dismal housing data from the US fuelled fears of a slowdown in global economic recovery today, rattling investor confidence and triggering a slump in stock markets.

Figures released by The National Association of Realtors reported an unprecedented drop in sales last month of previously occupied homes in the US. Total sales were down 27.2% to 3.83 million, far below the predicted 4.6m.

The effect of the uncertain economic outlook rippled across the Atlantic, where the London market closed 79 points down or 1.5% to 5156.

As the FTSE 100 Index closed, Wall Street's Dow Jones Industrial Average was down just under 1%, while the Nasdaq Composite was off just under 1% and the Standard & Poor's 500 Index declined just over 1%.

Traders' nerves are unlikely to be soothed anytime soon, with further US figures on durable goods orders, consumer confidence and revised second quarter GDP due later this week, as well as the latest speech on the state of the US economic recovery from Federal Reserve chairman Ben Bernanke.

Economic woes at home were compounded by a fall in the value of the pound, triggered by comments made by Bank of England economist Martin Weale, who warned that Britain faces a "significant" risk of a double-dip recession. Sterling fell against the US dollar to 1.54 and against the euro to 1.21.

The fears over weaker demand meant resources stocks dominated the blue-chip fallers board, with Vedanta Resources off 8% or 155p to 1882p and Kazakhmys down 45p at 1091.4p. There was further weakness for BP, which declined 13p to 377.5p in a fresh slide for the oil major despite the end of the Gulf of Mexico oil spill.

The economic nerves also overshadowed upbeat results from media and advertising firm WPP after it raised its revenues outlook for the full year due to a stronger-than-expected turnaround in North America.

Chief executive Sir Martin Sorrell also said major global economies were likely to avoid a double-dip recession, but this was not enough to lift the downbeat mood of investors as shares fell 26.5p to 644.5p.

Building supplies firm Wolseley, which is heavily exposed to the US economy, also fell 67p to 1239p on the day that it announced a £43m deal to sell its Brandon Hire tool business. Analysts expect further disposals after a review by Wolseley put 19 firms on a list of operations to improve or sell.

In other corporate results, housebuilder Persimmon was buoyed by news that it restored its dividend payments and said it was cautiously optimistic about prospects following higher half-year profits of £39.4 million. Shares recovered from falls earlier in the session and closed 1.5p up at 348.1p.

Borrowings also reduced sharply as the company focused on improved selling prices, rather than chasing higher volumes.

Punch Taverns shares were 7.2p higher at 85.4p after an improved trading performance in its managed pubs estate led it to forecast full-year profits marginally ahead of its previous expectations.

The biggest Footsie risers were Associated British Foods, up 35p to 1051p, Compass Group, ahead 9p to 513.5p, Old Mutual, up 2.1p to 127p, and Burberry Group, up 11p to 848.5p.

The biggest Footsie fallers were Vedanta Resources, down 155p to 1882p, Wolseley, off 67p to 1239p, Legal & General, down 4.6p to 90.8p, and Rio Tinto, off 141.5p to 3161.5p.

16.30:

Dismal housing market figures triggered falls on markets on both sides of the Atlantic.

Figures released by the National Association of Realtors reported an unprecedented drop in sales of previously occupied homes in the US last month to a 15-year low. Total sales were down 27.2% to 3.83m, far below the predicted 4.6m.

The effect of the uncertain economic outlook rippled across the Atlantic, where the FTSE 100 index dropped more than 2% upon publication of the US data. It stands 83.6 points down at 5,151.2.

The London market has fallen 12% since it hit a 22-month high on April 15, and it has dropped 6% since the beginning of the year.

Wall Street's Dow Jones Industrial Average dropped nearly 2% in early trading, while the Nasdaq Composite fell 1.7% and the Standard & Poor's 500 Index declined 1.6%.

Teunis Brosens, an economist with financial services group ING, said: 'These are truly dismal numbers, adding to the recent flurry of data suggesting that the recovery of the US economy is faltering.'

Revised second-quarter GDP due later this week, as well as the latest speech on the state of the US economic recovery from Federal Reserve chairman Ben Bernanke.

12.30:

Investors are sitting on their hands ahead of a swathe of US economic data.

Home sales figures are out later today, and there are figures later this week on durable goods orders, consumer confidence and revised second quarter GDP.

The week will be completed by the latest speech on the state of the US economic recovery from Federal Reserve chairman Ben Bernanke.

The Footsie has drifted lower to stand 56.4 points down at 5,178.4. Trader nerves overshadowed upbeat results from media and advertising firm WPP as it raised its revenues outlook for the full year due to a stronger-than-expected turnaround in North America.

Chief executive Sir Martin Sorrell also said major global economies were likely to avoid a double-dip recession, but this was not enough to lift the downbeat mood of investors as shares fell 21.5p to 649.5p.

10.00:

A string of falling mining and resource stocks dragged the Footsie into the red this morning.

The FTSE 100 index slipped 57.9 points to 5,176.5 after uncertainty over the condition of the global economy saw the Nikkei and Hang Seng finish 1% lower overnight.

The top flight closed in positive territory last night after takeover activity involving heavyweights HSBC and BHP Billiton helped end a run of three consecutive sessions of losses.

'You have to question why advisors are encouraging firms to pursue M&A activity at this time ... My sense is shareholders would be better served by money being returned to them,' Jeremy Batstone Carr, head of research at Charles Stanley said.

The latest economic fears meant commodity stocks dominated the blue-chip fallers' board.

India-focused mining group Vedanta Resources shed 120p to 1,917p after India's environment ministry rejected a plan by Vedanta to mine bauxite in an eastern state, saying it violated forest laws.

Vedanta is already facing regulatory hurdles in its bid for control of Cairn India, a potential deal valued at $9.6bn that could give the group a slice of India's oil reserves.

However, India's state-run Oil and Natural Gas Corp should have the last word in Vedanta Resources' proposed acquisition of Cairn India, Trade Minister Anand Sharma said.

Cairn Energy fell 4.9p to 459.9p after the oil explorer struck gas in Greenland, which disappointed investors who had hoped for an oil find, and said the sands were not of a type that usually yields commercial quantities.

Elsewhere in the sector, Chilean miner Antofagasta shed 30p to 997p after it trimmed its annual production target, even though posting a near doubling in first-half earnings per share.

Global miner Rio Tinto, meanwhile, fell 98p to 3,205p after a Canadian newspaper linked it and a Chinese partner with a bid for Potash Corp, which is fending off a $39bn hostile bid from BHP Billiton. Rio Tinto declined to comment.

South Africa's National Union of Mineworkers said its members at a Rio Tinto-BHP Billiton joint venture would vote on a strike on Tuesday over wage demands. BHP Billiton dropped 32.5p to 1,797.5p.

Coal and base metals miner Xstrata also fell sharply, dropping 3.0 29.8p to 989.2p after it announced a $381m agreed takeover of Australian-listed Sphere Minerals, which controls magnetite iron ore deposits in Mauritania.

Building supplies firm Wolseley, which is heavily exposed to the US economy, fell 43p to 1263p. That came after Irish building supplies giant CRH warned earnings would fall 10% this year, pointing to mounting concerns over the economy in the United States.

'Corporate news has been disappointing today. CRH's results had a negative read across for the sector and also ancillary companies,' Charles Stanley's Batstone-Carr said.

In corporate results, housebuilder Persimmon improved 6.2p to 352.8p after it restored its dividend payments and said it was cautiously optimistic about prospects after posting half-year profits of £39.4m.

Punch Taverns shares were 0.6p higher at 78.8p after it said it expected full-year profits marginally ahead of its previous expectations.