FTSE close: Miners, Diageo fall, S&N up, rates decision

By Ed Monk for Thisismoney.co.uk
Updated: 12:18 EDT, 10 February 2011

17.10 (close)

Waiting game: Economy news shaped sentiment today

The FTSE 100 Index was dragged downwards today as fears were reignited that Portugal may be the latest EU country to need a bail-out.

Heavy banking stocks were dragged into negative territory by the news, while mining stocks also suffered, which left the Footsie down 32.3 points at 6020.

The concerns came as Portuguese 10-year bond yields jumped to 7.35% - the highest since the launch of the euro in January 1999.

Fears resurfaced that the Iberian country would be forced to follow in the footsteps of Greece and Ireland and turn to the European Union for bail-out funds to revive its troubled economy.

Barclays, which is heavily exposed to the Iberian peninsula, fell 1% or 3.15p to 313.3p and HSBC was down 8p to 715p. Lloyds, however, was up 0.36p to 65.8p.

In London, the Bank of England decided to hold interest rates at their historic low of 0.5%, but this had little impact on the stock exchange. Despite the decision, which was widely expected, the pound was up at 1.61 against the dollar and to 1.18 against the euro.

The single currency was dragged down by the news from Portugal. Sentiment in the US was also dampened by a raft of disappointing earnings reports from the likes of drinks giant Pepsi and consumer electronics firm Cisco.

Miners were on the back foot as commodity prices continued to drop in the wake of China's decision earlier this week to raise interest rates. Rio Tinto was down 2% - or 110p to 4549p - while Antofagasta shed 26p to 1430p and Xstrata was off 25p at 1442.5p.

In corporate news, traders were disappointed by half-year results from drinks giant Diageo, which came in short of expectations and was the Footsie's biggest faller. Shares fell 5% or 58p to 1195p.

The market was also concerned about the impact of continuing economic weakness in Europe, where Diageo's net sales fell 3% in the half-year.

Elsewhere, traders were shaken by a profit warning from Air France-KLM and pulled out of British Airways parent International Consolidated Airlines Group. Shares fell 3% or 8.6p to 251p.

Rolls-Royce was also in the spotlight as underlying pre-tax profits rose 4% to £955m in 2010, despite a hit of £56m relating to the mid-air failure of one of its Trent 900 engines on a Qantas superjumbo.

The figures were better than expected but shares still retreated 5.5p to 650p.

Hip replacement maker Smith & Nephew saw shares rise after it reported better-than-expected results following a strong performance from its knee and trauma units. Shares were up 15p to 727p after it posted a 9% increase in trading profits to 278m US dollars (£173.1m) in the final quarter of 2010.

The biggest Footsie risers were Sage Group up 6.7p to 293.4p, Autonomy ahead 35p at 1607p, Smith & Nephew up 15p to 727p and Essar Energy ahead 8p 509p.

The biggest Footsie fallers were Diageo down 58p to 1195p, International Consolidated Airlines Group off 8.6p at 251, Randgold Resources down 146p at 4894p and Legal & General off 2.9p 118.8p.

14.50: The Dow Jones opened lower, down 63.5 points at 12.176.4, as US investors suffered a bout of nerves about European debt levels.

The news from Portugal and a gloomy update from Cisco Systems weighed on sentiment, and offset better than expected weekly unemployment data.

Meanwhile, we have more on Smith & Nephew, where chief executive David Illingworth has announced his retirement along with upbeat annual results.

The stock is up 11.5p at 723.5p.

The FTSE 100 is 52 points lower at 6,000.3.

13.50:

Here's some more on that fall in sales at Diageo. Shares in the drinks giant are 53p lower today - or 4.23% - at 1,200p.

Profits growth at Diageo was undermined by a sales slump in debt-hit Greece, Ireland, Spain and Portugal, as their consumers laid off booze.

Overall, the FTSE 100 is 41.99 points lower at 6010.30.

12.25:

There has been little reaction from equities to the decision to keep rates held at 0.5%.

The announcement was widely expected and the FTSE 100 has not stirred. The top-flight remains 54.95 points lower at 5997.34.p

In Europe, the cost of borrowing in Portugal hit a euro-era high earlier and reignited concerns the Iberian country would be forced to turn to the European Union for bail-out funds to revive its troubled economy.

The CAC-40 in France has slipped 0.8% today, and Germany's DAX fell 0.4%.

Bankers and miners have led the falls in London. Barclays, which is heavily exposed to the Iberian peninsula, fell nearly 2% or 5.9p to 310.5p, while Royal Bank of Scotland dropped 0.2p to 44p and Lloyds lost 0.4p to 64.95p.

Elsewhere, traders were shaken by a profit warning from Air France-KLM and pulled out of British Airways parent International Consolidated Airlines Group, sending the company to the bottom of the index. Shares fell nearly 5% or 12.9p to 246.7p.

12.05:

The interest rates decision is in... no change.

In its most finely balanced decision in two years, the Bank's monetary policy committee elected to keep the bank rate at its floor of 0.5% for the 22nd month.

11.20: The FTSE has slipped back below 6,000, falling 54.75 points to 5997.54.

Things are unlikely to be helped by Wall Street either, where the futures markets expect the Dow Jones to open sharply lower later this afternon.

09.20:

The FTSE 100 fell as shares stalled ahead of a decision on interest rates, while Diageo sank on news of lower sales.

The Bank of England is expected to keep rates on hold at 0.5% when the decision of Monetary Policy Committee reports at noon. However, markets have this week been pricing in a 25% possibility that rates will rise.

Any tightening of monetary policy would likely be seen as negative for shares. Check back later for market reaction to the decision.

In early trade today, the Footsie was 28.75 points lower at 6023.50. Ahead of the rates decision, the pound was at $1.6048 compared to $1.6088 at the previous close. Against the euro, the pound was at €1.1765 compared to €1.1752.

A disappointed reaction to half-year results from drinks giant Diageo also added to pressure on the top flight.

Diageo fell 5% or 58p to 1195p after its results came in short of expectations, even though chief executive Paul Walsh insisted 'momentum was building' in the business, which sells Smirnoff vodka and Johnnie Walker whisky.

Investors were also concerned about the impact of continuing economic weakness in Europe, where Diageo's net sales fell 3% in the half-year.

Rolls-Royce was also in the spotlight as underlying pre-tax profits rose 4% to £955m in 2010, despite a hit of £56m relating to the mid-air failure of one of its Trent 900 engines on a Qantas superjumbo.

The figures were better than expected but shares still retreated 9.5p to 646p.

Smith & Nephew was among the few risers this morning, 13.5p higher at 725.5p. Final results for 2010 showed the global medical technology business racked up higher sales, beating forecasts.

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