FTSE dips on US budget deadlock

LONDON FTSE 100 CLOSE 5,925.26 -9.76

GAINS from the heavyweight mining sector and defensive utilities stocks helped to offset falls among banks yesterday as investors continued to fret over the deadlock in the United States over plans to raise the country's debt ceiling.

The FTSE 100 index closed down just 9.76 points at 5,925.26, having see-sawed between gains and losses over the course of the session. The fall brought to an end a four-session rally of more than 3 per cent.

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Angus Campbell, head of sales at Capital Spreads, said: "Even though there are concerns about a US default on its debt repayments, the markets seem convinced that a resolution will be agreed before the August deadline."

The banking sector was put under great pressure - losing some 5 per cent - as ratings agency Moody's added to woes when it cut Greece's debt to two notches above default status.

Moody's also warned Greece's latest rescue could lead to downgrades elsewhere because of the precedent for further bail-outs.

The pound fell against the dollar to $1.62 ahead of this morning's second-quarter gross domestic product (GDP) figures for the UK, but it was up against the euro at €1.13.

Banks dominated the fallers board with Barclays down 10.6p at 228.95p and Lloyds Banking Group 2p lower at 45.1p.

Banks were already shaky prior to the weekend because analysts fear more write-downs for exposure to Greek debt in up-coming half-year results.

Investors diverted some of their money into safer havens such as gold, which climbed as high as $1,621 an ounce.

Water stocks also provided some shelter, with United Utilities up 10p to 598p and Severn Trent 10p higher at 1,461p.

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Glasgow-based engineering firm Weir Group also joined the utilities stocks at the top of the risers board, hitting an all-time high of 2,210p a rise on the day of 55p or 2.6 per cent.

Fellow Glaswegian firm Smart Metering Systems also continued its run of good form since joining Aim at the start of the month through a heavily-oversubscribed initial public offering. Shares closed up a further 7.7 per cent or 7p last night at 97.5p, compared with its flotation price of 50p.

Dundee-based cash machine advertising software firm I-Design continued to be in demand - climbing 9.5 per cent or 5p to end the day at 57.5p - following Friday's up-beat trading update.

Shares in building supplies firm Wolseley rose 9p to 1,915p after it sold its Build Center business to Jewson owner Saint-Gobain for 145 million. Outside the top flight, takeaway firm Domino's Pizza won over investors after an initially lacklustre reaction to its half-year results.Shares opened lower after the firm reported a further slowdown in sales growth but - with Domino's also posting a 2m rise in half-year profits to 19m and bolstering marketing activity - its shares recovered to stand 5 per cent or 23.3p higher at 482.4p.

One of the biggest gains of the session came from school activity centres operator Holidaybreak after it said it had received a takeover offer.

The company did not reveal the identity of its suitor but shares still jumped 15 per cent or 48p to 367p.