FTSE preview: Shares dip ahead of rate news

By Reuters
Updated: 02:51 EDT, 9 June 2011

The FTSE 100 is seen falling back on Thursday, extending a sharp drop made in the previous session in tandem with overnight weakness on Wall Street and in Asia, with investors awaiting the latest interest rate decisions in Britain and Europe.

Waiting game: Traders will take a lead from rate setters.

Financial spreadbetters expect the FTSE 100 to open down as much as 8 points, or 0.2%, having closed 55.76 points or 1.0% lower on Wednesday at 5,808.89, snapping a modest four-session winning streak.

The UK blue chip index breached its 200-day moving average of 5,815 on Wednesday, but did bounce off an intra-session low of 5,791.80, with the main weakness coming from mining stocks as investors expressed concerns about the strength of the global economic recovery.

'Because of short-term oversold conditions and the test of the key 61.8% retracement level at 5,787.23, bearish traders are likely to be a little less aggressive on the short-side at current price levels,' said Enis Mehmet, analyst at Autochartist.

'If 5,791.59 holds as the low, then watch for the formation of a support base and the start of a possible retracement to 5,900.89 to 5,926.64,' Mehmet added.

US stocks extended losses into a sixth straight session on Wednesday as investors worried that a slowing economy could deepen the market's retreat.

The latest evidence of a slowdown came in the Federal Reserve's Beige Book, which gives an anecdotal report on the economy. It reinforced Fed chief Ben Bernanke's bearish assessment on growth delivered in a speech late on Tuesday.

Asian stocks also fell for a sixth straight day on Thursday as investors cut exposure to risky assets on signs the global economy is losing steam, with higher oil prices casting a shadow after OPEC failed to reach a deal to boost output.

The Bank of England Monetary Policy Committee is once again expected to make no change to record low British interest rates of 0.5% when the decision of its latest meeting is revealed.

The European Central Bank will also unveil its latest decision on interest rates with no changes expected there as well this month, although the ECB is expected to flag a likely rise in July.

Ahead of the rate decisions, British trade figures will be released, with April's global trade gap seen at £7.55bn, largely unchanged from March's £7.66bn defict.

US April international trade figures will also be released at the same time as the latest weekly jobless claims. April US wholesale inventories will be released.

BP's chief executive Bob Dudley gave a cool assessment of the company's chances of reviving a $16bn share swap and Arctic exploration deal with Russia's Rosneft, saying talks on the tie-up had faded. Dudley was speaking at the launch of the company's annual statistical review of world energy markets in London.

BP's chief executive also said that Iraq's oil output is likely to be only half the government's official target at the end of this decade, due to infrastructure problems.

Around 3,500 union workers at Australia's BHP Billiton-Mitsubishi Alliance, the world's biggest producer of metallurgical coal, plan several work stoppages next week but are not planning wider strike action at this stage, a union official said on Thursday.

A divide is emerging between the heads of major British banks over the implementation of a key proposal to restructure the industry by ring fencing their retail operations, The Financial Times said.

There will be updates today from Home Retail Group, Halfords, Hampson Industries, Wincanton and PZ Cussons.