FTSE retreats after lacklustre session

BRITAIN'S biggest blue-chips drifted lower yesterday in a lacklustre session with Smiths Group out of favour, hurt by a broker downgrade, although Unilever was boosted by a well-received US acquisition.

The benchmark FTSE 100 index closed down 25.06 points, or 0.5 per cent, at 5,573.42, wiping out part of last week's 1.6 per cent gain.

The mood was similar on Wall Street, where US stocks have been enjoying their best month since March 2000 but failed to sparkle by the time of London's close.

Fresh concerns about the European banking system hampered trading after Moody's downgraded the debt of Anglo Irish Bank.

Michael Hewson, an analyst at CMC Markets, said: "With final revisions to both UK and US Q2 GDP data later this week there has been little in the way of new catalysts to get excited about, and the market has traded in a fairly tight range."

Broker recommendation and target price changes were behind some of the individual equity moves. Engineering heavyweight Smiths Group shed 1.6 per cent, or 20p, to 1,207p after BoA Merrill Lynch cut its rating to "neutral" from "buy" in a review of the UK capital goods sector.

The broker said it downgraded Smiths due to the stock's re-rating and high US, but low emerging market sales exposure, while leaving its target price unchanged at 1,350p.

Software firm Sage Group topped the blue-chip leader board, while peer Autonomy was a solid gainer after Barclays Capital initiated coverage on the European software/IT services sector with a positive view.

In a note, analysts at Barclays Capital said: "We believe, as a late cyclical sector with increasing corporate IT investments and easy comps, the sector has the potential for relative outperformance versus the market in the coming months."

Yesterday's directionless trade came despite a renewed bout of corporate activity following major deals involving Dove and Flora owner Unilever and Asda supermarket business Wal-Mart.

Unilever's 2.3 billion deal to buy American haircare firm Alberto Culver gave a boost to the share price of the Anglo-Dutch firm, which closed up 23p at 1,816p after its swoop for brands such as VO5 and Simple.

In the US, shares in Southwest Airlines jumped after announcing it will buy AirTrain Holdings, while Wal-Mart Stores was in the spotlight after a proposal to buy South African Massmart Holdings.

The session was also notable for gold prices remaining at a heady $1,300 an ounce, with some predicting a rise to $1,500. And an upbeat report on the UK economy from the International Monetary Fund helped the pound.In corporate results, shares in building supplies firm Wolseley were 10p lower at 1,520p after it announced a 1 per cent rise in annual trading profits and highlighted an uncertain outlook for core markets in the US and UK.

Premier Inn firm Whitbread was up 6p to 1,628p due to an upgrade by Credit Suisse.

Elsewhere, HSBC slipped 5.4p to 660.9p following Friday night's confirmation that chief executive Michael Geoghegan will leave the banking giant.