Rate cut fails to keep the FTSE in positive territory

Published on Thursday 8 January 2009 20:26

LONDON FTSE 100 CLOSE 4,505.4 -2.1

LONDON'S share index closed a fraction lower yesterday, as the Bank of England's widely anticipated cut in interest rates failed to breathe life into a subdued market.

Weak mining stocks and gloomy sentiment across the Atlantic – where Wall Street was shaken by grim unemployment news and poor retail performance – meant the Bank's decision to cut interest rates to an all-time low of 1.5 per cent from 2 per cent had little effect.

But the Footsie was able to claw back from near-2 per cent losses to close down just 2.1 points to 4,505.4.

Paul Webb, group head of trading at CMC Markets, said: "Although the move pushed UK interest rates to a record low, there had been some speculation that a more aggressive move would be seen so the resulting yields have favoured cash at the expense of equities."

Miners were under pressure in London after a fall in commodity prices, with Vedanta Resources down 45p at 705p, or 6 per cent, Anglo American also off 102p at 1,623p and Rio Tinto 82p cheaper at 1,730p.

But banks enjoyed a rare strong session as the cut in base rate bolstered shares.

Barclays added 7.2p to 177p, while Lloyds TSB was up 4.5p at 128.4p and merger partner HBOS lifted 1.3p to 74p. Royal Bank of Scotland rose 1.6p to 50.6p on talk the Scots financial institution is reviewing its stake in Bank of China.

Retailers continued to defy analysts with better-than-expected results, but the picture remained mixed for the sector.

Sainsbury's delivered a best-ever Christmas with more than 22 million customers, although investors took profits after recent gains, leaving shares 6p lower at 328.75p.

Morrisons dipped on it rival's strong performance, falling 4p to 277.75p. Marks & Spencer shares fell 9.5p to 234.5p, while Tesco stocks rose 0.8p to 361.1p.

And designer brand Ted Baker was unchanged at 324p despite lowering profits guidance after feeling the heat from a cut-throat Christmas for fashion retailers.

Oil heavyweights, meanwhile, came under pressure after a sharp collapse in crude oil prices to around $45 a barrel on higher than expected US inventories data, but rebounded towards the close with BP reversing its slide to end up 8.25p at 532p.

Elsewhere, a raft of other corporate updates gave investors plenty to chew on. FTSE 250 housebuilder Persimmon cut its final dividend, but added 13.25p to 293p as it reported no further deterioration in results and a better than expected debt position.

Vodafone shed 1.3 per cent after announcing it had tightened guidance on a planned seven-year benchmark euro bond after strong demand.

Mid-cap recruiters Michael Page International and Hays dipped 0.4 per cent and 0.3 per cent, respectively, after both companies announced results pointing to underlying weakness in the UK labour market.