Economic blow takes its toll

Published on Tuesday 24 November 2009 21:25

LONDON FTSE 100 CLOSE 5,323.96 -31.54

NEWS that the US economy has been growing much more slowly than thought in recent months hit commodity and financial companies yesterday, sending shares lower in London.

Official figures had shown that the US economy grew at a rate equivalent to 3.5 per cent a year in the third quarter, but this was revised sharply downwards to 2.8 per cent yesterday.

The news follows revelations that the UK economy was still in recession in the third quarter, contracting by 0.4 per cent. That figure might be revised today, but CMC Markets analyst Michael Hewson said the market was expecting an upwards revision of only 0.1 per cent.

Shares in banks and mining companies, which heavily influence the FTSE 100 index, dropped on the news, pulling the leading index 31.54 points lower to 5,323.96. Royal Bank of Scotland was the biggest faller, as it was revealed that it borrowed heavily from the Bank of England's emergency liquidity scheme earlier this year. Shares in RBS, majority-owned by the UK taxpayer, fell 4 per cent to 36.31p.

Lloyds Banking Group, remarkably, was the leading riser, gaining more than 2.5 per cent. The bank announced Britain's largest-ever rights issue, aiming to raise 13.5 billion, but with shares being offered at an attractive 60 per cent discount, traders bought up the stock. Lloyds shares closed up 2.34p at 93.81p.

Mining companies, which have been responsible for much of the recent gains in London, were down though, as metal prices sagged. Kazakhmys dropped 39p to 1,281p, Rio Tinto was down 93p at 3,172p and gold miner Randgold Resources dropped 80p to 5,040p.

Thomas Cook, which has been falling on debt worries, continued to slide yesterday as sterling weakened. The shares fell 3.4 per cent to 206.20p.

As concerns over the economy rose, investors bought up defensive companies. International Power rose 3.6p to 275.6p, United Utilities added 7.9p to 484.9p, while pharmaceutical group Shire rose 13p at 1,172p.

Retail companies were stronger, following an upbeat note from analysts at Nomura. The broker recommended investing in Marks & Spencer, which jumped 7.2p to 388.9p. Argos-owner Home Retail Group rose 1.9p to 306.8p.

Traders took profits in Dairy Milk-maker Cadbury, which hit it a year-high on Monday as hopes of a takeover battle emerged. Shares dropped 6p to 808p.

Fashion label Burberry was the victim of a broker downgrade from Morgan Stanley, sending shares down 6p to 571p.

Severn Trent climbed 7p to 1,004p on better-than-expected pre-tax profits. The water company said it had kept bad debts under control despite the recession, although much will depend on regulator Ofwat's price settlement for the industry tomorrow.

Among the mid-cap companies, Durex-to-Scholl footcare firm SSL International climbed 48p to 720p after strong pre-tax profits in the six months to September, as sales of branded goods weathered the recession.

Topps Tiles dropped 1.5p to 93p after announcing that it had raised 15.4 million in a share placement to cope with difficult trading.

On the Aim, Clyde Process Solutions rose 4p or 7 per cent, after announcing two new contracts with unnamed customers in Asia, worth 1.9m. The East Kilbride headquartered group is scheduled to report interim results this morning.

Iomart, the network hosting group, rose 0.5p to 45.5p after reporting a move into underlying profitability, adding that it plans to pay another dividend for the full year.