Sluggish US growth hits the City

Published on Friday 30 July 2010 15:49

LONDON FTSE 100 CLOSE 5,258.02 -55.93

London's Footsie slumped more than 1 per cent yesterday after US figures showed weaker-than-expected growth in the second quarter.

Stocks fell amid fears of a sluggish recovery for the world's biggest economy, with the FTSE-100 Index closing down 55.93 points at 5,258.02.

America's gross domestic product (GDP) data showed 2.4 per cent annualised growth between April and June - slightly below the 2.5 per cent forecast by the market - while revisions also showed the US had a deeper recession than first thought.

Wall Street's Dow Jones Industrial Average plunged almost 120 points on opening, although losses were soon pared back as investors saw positive signs in the economic report. Analysts said there was some good news in the consumer savings rate, which they said could lead to higher spending in the coming months.

The pound strengthened to more than $1.57 against the dollar as the greenback took a hammering after the GDP data. Sterling also rose 0.7 per cent to €1.20.

Anthony Grech, head of research at IG Index, said: "Investors will be looking to next week with some trepidation as no clean break above 5,300 has yet been made. This is the level at which the last few rallies have stumbled and it would be unsurprising to see the FTSE flirt with this mark early next week.

"However, without a few pieces of solid data to push the index over the top, we may see further weakness as the market runs into a brick wall like it has done this week."

The spotlight was yesterday on British Airways, which shrugged off a 250 million hit from strikes and Iceland's volcanic ash cloud as investors chose to back signs of recovery.

Chief executive Willie Walsh's forecast of a break-even performance this year and improving passenger trends helped shares add 3.6p or 2 per cent to close at 219.6p, putting it among the top risers.

A clutch of utility stocks also defied the market falls after an infrastructure fund snapped up the UK's biggest electricity distribution network from EDF in a 5.8 billion deal.

The bigger-than-expected price tag raised hopes of renewed appetite for UK assets and meant United Utilities rose 24.5p to 585p.Water firm Severn Trent added 30p to 1,310p, while in the FTSE 250 South West Water-owner Pennon added 12.5p to 590p.

The late session sell-off wiped out early gains for some stocks, with broadcaster BSkyB ending the day unchanged at 711p after rising more than 2.5p at one stage as Citigroup brokers upped their target price following Thursday's strong results.

Cruise ship giant Carnival also lost advances, down 6p to 2,300p, despite positive broker comment as Bernstein analysts said there was too much caution over prospects for the sector.

Investment bank Investec was among the biggest fallers as markets gave a lukewarm reception to its "satisfactory" performance during the first half, leaving shares 12p down at 495p.

In the FTSE 250, broadband group TalkTalk eased 0.8p to 122.5p after net new broadband customers fell to 34,000 in the seasonally quieter first quarter of its year.