FTSE fails to follow sterling's bounce

Surprising growth figures for the UK economy sent the pound soaring yesterday, but the news failed to offset falls on the FTSE100 index.

The 0.8 per cent rise in third-quarter gross domestic product (GDP), based on provisional estimates by the Office for National Statistics, was double the 0.4 per cent expected.

While the pound received an immediate boost, the Footsie retreated into the red - closing down 44.68 points to 5,707.3 - after a decline in US house prices and disappointing earnings from banking giant UBS.

Will Hedden, sales trader at IG Index, said: "For the FTSE100, the 5,800-area remains a big barrier, representing the highs from April this year.

"Having risen by about 10 per cent in the past couple of months, this is a market that could stand some more cooling off from current levels but still retain a positive bias.

"It doesn't look as if the bulls are ready to leave the fray just yet, so it would not be surprising to see another surge upwards as the week goes on."

Wall Street's Dow Jones Industrial Average was also under pressure in early trading after a home-price index revealed a 0.1 per cent drop in houses prices during August.

Sentiment was further hit after UBS posted an overall profit in the third quarter of 1.66 billion Swiss francs (1bn), but its investment bank, which employs 6,300 at its London headquarters, suffered a loss of 265 million.

Sterling jumped more than 1 per cent against other major currencies after the better-than-expected UK growth figures and after ratings agency Standard & Poor's revised its outlook on the UK from negative to stable.

The pound reached $1.59 and €1.14 after the GDP data indicating the Bank of England will hold off from taking further emergency action to prop up the economic recovery.

The banking sector saw falls in the wake of the UBS update, with Barclays down 4p to 277.4p, Royal Bank of Scotland off 0.6p to 44.8p and HSBC off 8.4p to 660p.

The biggest fall in London, however, was recorded by Edinburgh-based oil and has explorer Cairn Energy after an update on its Greenland exploration activities disappointed investors.

Shares dropped 7 per cent - off 29.5p to 382.5p - after two wells were abandoned and another did not reach its target depth before the end of the Arctic drilling season, although Cairn stressed operations may resume next year.

Other top-flight fallers included Arm Holdings, despite better-than-expected third-quarter profit and sales figures as it benefits from demand for its microchips in electronic gadgets.

Shares were 23p lower at 366.2p as analysts said the current share price reflected much of the upside in the stock.

Insurance firms were also under pressure after a downbeat review of the sector by brokers from Bank of America, prompting Legal & General to fall 1.3p to 101.5p and Prudential to drop 10.5p to 621.5p.

Transport group Go-Ahead was up 7 per cent after it reported "robust" current trading and said it had identified the successor to chief executive Keith Ludeman, who is due to retire in July. Shares rose 85p to 1,358p.