Global events hit investors nerves

London's blue-chip share index struggled to make headway yesterday as a Chinese interest rate hike and European economic woes hit investors' nerves.

World markets saw subdued trading after China moved to increase its interest rates for the fourth time since October to calm inflation, while ratings agency Moody's downgraded Portugal's debt rating for the second time in less than a month.

The FTSE 100 index closed 9.92 points lower at 6,007.06, with the Portuguese concerns putting banks under pressure.

David Jones, chief market strategist at IG Index, said: "It has been a low volatility session, with the FTSE stuck in a tight range of less than 20 points. The FTSE 100 has bounced back around 8 per cent since the March lows, with some thinking that is probably far enough in such a time.

"The 6,000-6,100 area has been too tempting for sellers in the past couple of months and it is difficult to see what the catalyst would be for further significant gains this week."

Figures showed activity in the UK services sector grew at its fastest pace in more than a year in March, re-igniting concerns of an imminent interest rate hike.

The data saw the pound strengthen across the board, rising to $1.63 and €1.14.

Among stocks, banking giant Barclays was in the red due to worries over its performance this year after a Financial Times report suggested the bank expected a key measure of its profits to decline in 2011.

The group, which is said to be looking to increase its risk appetite to hit profitability targets, saw shares fall 1.6p to 286.8p.

Other bank shares were also lower after the Moody's downgrade for Portugal, fuelling fears over the exposure of UK lenders on the Iberian peninsula.

The ratings agency warned the debt-laden country may suffer a further cut as it battles to avoid joining Greece and Ireland in seeking a rescue. Lloyds Banking Group fell 0.7p to 59.6p and Royal Bank of Scotland was 0.2p lower at 41.7p.

But there was further gloomy news elsewhere in the retail sector after another profits warning from embattled music chain HMV - the company's third this year. Shares dropped a further 20 per cent or 3p to 12.25p, even though the group said lenders had agreed to put back financial tests from the end of April to the beginning of July.

Edinburgh-based Wolfson Microelectronics jumped 5 per cent, or 12.5p, to close at 260p after Texas Instruments bought fellow microchip maker National Semiconductor for $6.5 billion (4bn).Analysts at Numis upgraded Wolfson from "reduce" to "hold".

Scottish & Southern Energy closed down 10p at 1,295p despite analysts at RBC Capital Markets increasing their target price on the Perth-based utilities giant from 1,120p to 1,250p on the back of rising power prices.