Miners hit by Chinese interest rate rise

China's first interest rate rise since 2007 hit mining shares and dragged Britain's leading share index lower yesterday, offsetting gains from banks after solid results from Bank of America and Goldman Sachs.

At the close, the FTSE 100 index was down 38.63 points, or 0.7 per cent at 5,703.89, having earlier dipped below the 5,700 level to a session low of 5,690.58.

Mic Mills, head of electronic trading at ETX Capital, said: "Miners put the skids under the FTSE, dropping after the China rate move designed to rein in its booming economy, but the underlying mood is not too bad with banks seeing support and volumes fairly solid."

Metal prices fell on concerns demand might weaken after China's central bank said it will raise its benchmark one-year lending and deposit rate by 0.25 per cent.

Miners dominated the fallers board in London, with silver miner Fresnillo down 5.3 per cent or 68p at 1,223p and Xstrata down 4 per cent or 57p at 1,248.5p.

Mixed earnings figures on Wall Street added to the pressure, with heavy early falls on the Dow Jones Industrial Average sending the Footsie deeper into negative territory.

Disappointing earnings reports from corporate heavyweights Apple and IBM offset better-than-expected results from US investment banking giant Goldman Sachs, leaving the Dow down more than 1 per cent in early trading.

American investors failed to draw support from an unexpected rise in US housing starts in September to a five-month high.

The pound weakened against the dollar amid the anxiousness over this week's economic developments, including today's comprehensive spending review and the publication of minutes of the latest monetary policy committee meeting. Sterling fell 1 per cent to $1.57.

The defence budget blow from the UK government yesterday hit a number of defence-related stocks. Babcock International dropped 5 per cent, or 28.5p to 564p, while BAE Systems fell 6p to 363.9p.

Banks lost earlier gains, after credit rating agency Fitch said the banking sector was slowly returning to health in the UK, but warned that regulation of capital and liquidity requirements was likely to weigh on earnings in the long-term.

Lloyds Banking Group was the worst off, down 1.7p to 70.5p.

Shares in housebuilder Bellway were under pressure after it said it did not expect a pick up in sales before next spring. The stock fell 6 per cent or 36.5p to 565p, even though Bellway posted full-year results ahead of forecasts and increased its dividend.

Meanwhile, retailer Blacks Leisure jumped 25 per cent - up 8p to 42.5p - after it said it had received takeover approaches for some or all of the business.

Sports Direct, which pulled an offer for Blacks in March, fell 1.7p to 147.5p even though the Serious Fraud Office (SFO) said the company will not face charges in relation to its inquiry into allegations of cartel activity.Shares in JJB Sports, also cleared by the SFO, rose 0.25p to 10.5p.

Among Scottish stocks, Dunfermline-based eye scanning machine maker Optos rose 1p to 104p after unveiling its latest product.