FTSE close: Banks' Portugal hit, HMV dips

By Ed Monk for Thisismoney.co.uk
Updated: 12:22 EDT, 5 April 2011

17.15 (close)

Taking stock: The rally may run out of steam today.

London's blue chip share index struggled to make headway today as a Chinese rate hike and fresh European economic woes hit investor sentiment.

World markets saw subdued trading after China moved to increase interest rates for the fourth time since October to calm inflation, while Moody's downgraded Portugal's debt rating for the second time in less than a month.

The FTSE 100 Index closed 9.9 points lower at 6007.1, with the Portuguese concerns putting banks under pressure.

Figures for the UK services sector were also in the spotlight after activity grew at its fastest pace in more than a year in March, reigniting concerns of an imminent interest rate hike.

The data saw the pound strengthen across the board, with the Markit/CIPS survey from the services sector showing activity surged to a 13-month high in March. Sterling rose to 1.63 dollars and 1.14 euros.

There was service sector news in the US as well, where figures showed lower-than-expected growth last month.

Oil prices hit fresh all-time highs in sterling terms, but benchmark crude eased back after the Chinese rate decision led to demand fears.

Among stocks, banking giant Barclays was in the red due to worries over its performance this year after a Financial Times report suggested the bank expected a key measure of its earnings to decline in 2011.

The group, which is said to be looking to increase its risk appetite to hit profitability targets, saw shares fall 1.6p to 286.8p.

Other bank shares were also lower after the Moody's downgrade for Portugal, fuelling fears over the exposure of UK lenders on the Iberian peninsula.

The agency warned the debt-laden country may suffer a further cut as it battles to avoid joining Greece and Ireland in seeking a financial rescue package.

Lloyds Banking Group fell 0.7p to 59.6p and Royal Bank of Scotland was 0.2p lower at 41.7p.

Notable risers included Argos and Homebase owner Home Retail Group in the FTSE 250 as it lifted on takeover speculation following its recent profits warning.

The group, which is regularly said to be a potential target for Asda owner Wal-Mart, is now thought to be in the sights of US private equity firm Madison Dearborn Partners. Home Retail shares lifted 2% or 3.5p to 208.1p.

But there was more gloomy news elsewhere in the retail sector after another profits warning from embattled music chain HMV - its third this year.

Shares dropped another 20% or 3p to 12.3p, even though the group said lenders had agreed to put back financial tests from the end of April to the beginning of July.

It is also thought bidders for its Waterstone's books chain are being put under pressure to make an offer, with Russian oligarch Alexander Mamut said to have been given just over a fortnight to agree a deal.

The biggest Footsie risers were Vedanta Resources up 106p to 2518p, Resolution ahead 9.4p to 303.8p, Icap up 15p to 541.5p and Arm up 15p to 588.5p.

The biggest Footsie fallers were Invensys off 7.8p to 344p, ITV down 1.8p to 78.1p, IMI off 21p to 1038p and Aggreko down 33p to 1645p.

15.45:

The falls in the US and UK today have been blamed, in part, on a rate rise in fast-growing China.

A surprise drop in US service sector activity added to the pressure, leaving the Footsie 15.5 points lower at 6001.49.

14.30:

The Dow Jones has opened and is lower.

The Dow is 23.6 points down at 12,376.42.

Back in London, the FTSE 100 is 15.08 points lower at 6001.90.

13.30:

The FTSE 100 is 19.9 points lower at 5997.07.

Over on Wall Street, the futures markets are predicting a lower open for the Dow Jones. Check back within the hour to see if they're right.

12.15:

At lunchtime, the FTSE 100 has slipped below 6,000 and is trading 21.66 lower at 5995.32.

Shares were hurt by figures suggesting the UK services sector grew at its fastest pace in more than a year in March. This reignited concerns of an imminent interest rate hike.

There was also a move in sterling prices after the Markit/CIPS figures. Here's a full explanation.

Banking giant Barclays was under pressure amid worries over its performance this year after a Financial Times report suggested the bank expected a key measure of its earnings to decline in 2011.

The group, which is said to be looking to increase its risk appetite to hit profitability targets, saw shares fall 2% or 5.2p to 283.1p.

Other bank shares were also in the red after Moody's downgraded Portugal's debt rating for the second time in less than a month, fuelling fears over the exposure of UK lenders on the Iberian peninsula.

The agency warned the debt-laden country may suffer a further cut as it battles to avoid joining Greece and Ireland in seeking a financial rescue package.

Lloyds Banking Group fell 0.8p to 59.5p and Royal Bank of Scotland was 0.3p lower at 41.5p.

10.45:

In economy news today, the influential OCED has downgraded its forecast for growth in the UK.

The Organisation for Economic Co-operation and Development expects the UK to dodge a double-dip recession with GDP returning to growth in the first quarter, although Britain will lag all leading nations bar Japan in the months ahead.

The OECD said the UK was growing at an annual rate of 3% in the first quarter, helping to correct a 0.5% decline in GDP in the final quarter of 2010.

However, the UK will then grow at an annual rate of just 1% in the second quarter. Here's the full story.

Meanwhile, the FTSE 100 has slipped below 6,000 - 20.59 points lower at 5996.39.

A high-profile firm in the news is HMV, which today issued another profit warning.

The downgrade to profits is the fifth since September and the embattled High Street chain saw its shares – which stood at 65p last September - fall 1.25p, or 8%, to 14.00p.

Here's more.

09.20:

The FTSE 100 is flat with retailers up despite more gloom at HMV and a rise in the oil price, while banks dipped on news of another downgrade for Portugal.

The FTSE 100 rose in early trading today but has since slipped to stand 9.15 points lower at 6007.83.

Banking shares were back under pressure today after Moody's downgraded Portugal's debt rating for the second time in less than a month.

The agency warned the debt-laden country may suffer a further cut as it battles to avoid joining Greece and Ireland in seeking a financial rescue package.

The update fuelled fears over the exposure of UK lenders on the Iberian peninsula, with Barclays down 6.7p to 281.6p, Lloyds Banking Group off 0.7p to 59.6p and Royal Bank of Scotland 0.4p lower at 41.4p.

Notable risers included Marks & Spencer, which climbed 2.45p to 344.75p as investors prepared for the company's latest trading update on Wednesday. Next also rose 13.5p to 2059.5p, while in the FTSE 250 Index Argos and Homebase owner Home Retail Group cheered 9.75p to 214.35p.

The retail gains came despite another profits warning from embattled music chain HMV - its third this year. Shares dropped another 10% or 1.5p to 13.75p, even though the group said lenders had agreed to put back financial tests from the end of April to the beginning of July.

Oil prices (Brent Crude) touched $120 yesterday, raising expectations that companies will se profit margins squeezed. There's more on the oil price rise here.

In currency today, the pound is $1.6151 compared to $1.6126 at the previous close. Against the euro the pound is €1.1384 compared to €1.1339 at the previous close.