Markets: Fed's hint of further easing falls flat

IMPROVED prospects of further economic stimulus in the US failed to cheer the London market yesterday after it continued its slide into the red.

At a meeting in Boston, US Federal Reserve chairman Ben Bernanke said the central bank was prepared to do more to stimulate the sluggish American economy - adding weight to the likelihood of further quantitative easing (QE) in the US.

But the optimism failed to ripple over the Atlantic, where insurance and commodity stocks dragged the FTSE 100 Index 23.84 points or 0.4 per cent into the red at 5,703.37.

Analysts felt that Bernanke's comments had little impact because they were no surprise.

Jim Wood-Smith, head of research at Williams de Broe, said: "The comments were fully expected and equity markets have already risen sharply since (the second bout of quantitative easing] was flagged."

Further talk of additional QE in the US weakened the dollar, sending the pound up to its highest level against the greenback since January at $1.61.

BT shot to the top of the Footsie after it struck a deal to secure its central government contracts, which should allay investors' fears about the group's exposure to next week's spending cuts. Shares lifted 4.2p to 147.4p.

Bank stocks dominated the risers' board as the sector clawed back ground lost after Standard Chartered's decision to raise additional capital in a rights issue, which sparked concerns of a slew of similar moves.

Barclays has been lower following Standard's move but yesterday recovered 2 per cent or 5p to 285p, while part-nationalised Royal Bank of Scotland added 1.1p to 46.4p. Standard Chartered itself was up 11.5p at 1,899.5p.

HSBC surrendered earlier gains to stand 9p lower at 653.3p after it confirmed talks had ended unsuccessfully over its plan to buy a 70 per cent stake in South Africa's Nedbank. It pulled out of the proposed deal - worth a reported 5bn - after two months of talks, which were due to expire this weekend.

Shares in Nedbank's majority owner, Old Mutual, fell 6.9p to 138.3p, a drop of 5 per cent.

Insurers followed the group on the fallers' board after a downbeat note on the life assurance sector by broker Citigroup.

Edinburgh-based Standard Life dropped 7.6p to 227p and RSA Insurance lost 4.4p to 131.8p.

Miners were not far behind, with Kazakhmys down 2 per cent or 33p to 1384p and Xstrata off 30.5p at 1,311.5p.

Outside the top flight, shares in broadcaster ITV were 6 per cent higher after Morgan Stanley upgraded the stock.Shares rose 3.7p to 66.7p.

Belgium-based gearbox designer Hansen Transmissions was the top riser in the FTSE 250 Index - up 8 per cent or 3.7p to 49.5p - after it said it had received an offer for its industrial gearbox division from Japan's Sumitomo Heavy Industries.

But telecoms group TalkTalk suffered after a broker downgrade, shedding 6.1p to 133.7p in the second tier.

A technical indicator suggested the FTSE 100 index looked over-bought, Wood-Smith said.

He added: "The 14-day relative strength index is at around 70 which is fairly rare and a good short term indicator that an index is stretched."