Chinese whispers hit FTSE stalwarts

LONDON FTSE 100 CLOSE 5,816.94 -58.25

A SLUMP in London shares driven by weaker commodities brought a reality check to investors yesterday, suggesting it may be some time yet before the Footsie tests the 6,000 level.

Markets around the world retreated on concerns that China will tighten policy to cool rising inflation and curb growth.

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Stocks fell sharply after the country's central bank announced it would raise the amount of cash that banks need to hold in reserve.

In London, mining giants - that benefit significantly from Chinese demand - provided much of the downforce on the benchmark FTSE 100 index, which closed 58.25 points or almost 1 per cent lower at 5,816.94.

IG Index sales trader Ben Critchley said: "The FTSE spent most of the morning in gradual decline as investors booked profits in the mining sector, with retreating copper prices and worrying data out of China weighing on markets in early trade.

"China posted a bigger-than-expected trade surplus in October, which could suggest Chinese purchasing power may not be as robust as had been thought."

Wall Street's Dow Jones Industrial Average was down nearly 40 points in early trading.

There was little impact on stocks following the Bank of England's assessment that the UK should be able to avoid a double-dip recession. However, the UK central bank kept economists guessing about whether more quantitative easing (QE) could be on the cards early next year.

The pound strengthened - hitting a fresh six-week high against the euro - as it became clear there was little likelihood of an imminent QE move.

But investors on both sides of the Atlantic were cautious ahead of a key meeting of world leaders and as Europe continues to grapple with government debt problems. The G20 will meet today and tomorrow in South Korea.

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Metal group Lonmin was the worst hit of the London mining stocks, down 5 per cent or 88p to 1,806p.

Strong gains in the utility sector failed to offset the commodity falls, with Scottish & Southern Energy rising by nearly 4 per cent after it confirmed the group remained on track to meet full-year forecasts despite a 6 per cent fall in half-year profits to 385.5 million.

SSE - up 42p to 1,160p - gave a further boost to investors by maintaining its dividend policy and hiking its half-year payout by more than inflation.

The results sparked increases for National Grid, up 7.5p to 583p, while water firm Severn Trent and British Gas owner Centrica also benefited - ahead 9p to 1,438p and 1.9p to 336.2p respectively.

Meanwhile, Rolls-Royce shares were back under pressure after Singapore Airlines said it had taken three of its Airbus A380 superjumbos out of service to make "precautionary changes" to the planes' engines.

Shares in the manufacturing giant have fallen sharply since the failure of a Rolls-Royce engine on a Qantas superjumbo flight which had just taken off from Singapore.The stock was 18.5p lower at 588p, dashing the tentative recovery signs seen since an update from the company on Monday.