Profit taking helps halt FTSE's surge

LONDON FTSE 100 CLOSE 5,319.68 -45.99

London's Footsie index fell into the red yesterday as the rally in the banking sector fizzled out and investors looked to secure profits from recent gains.

The FTSE-100 closed 0.9 per cent or 45.99 points lower at 5,319.68, following worries over slowing recovery in the United States and UK adding to profit-taking pressures.

Yusuf Heusen, senior sales trader at IG Index, said: "Blue chips in London came under some real selling pressure for the first time in a couple of weeks.

"After the modest but steady gains seen in recent days, there were signs that investors were starting to question how far share prices have come this month and whether further progress was really sustainable."

Wall Street's Dow Jones Industrial Average also slipped in early trading after an unexpected decline in manufacturing orders during June reinforced concerns the US recovery is running out of steam.

On currency markets, there was no let up in the pound's rally against the dollar as it rose past $1.56 - its highest level since mid-February.

But banks stocks gave back some of Tuesday's impressive gains, having driven the Footsie higher amid prospects of more lenient regulatory reforms. Lloyds Banking Group eased 2.5p to 69.4p and Royal Bank of Scotland dropped 0.6p to 49.7p.

The market was also knocked by cautious comments on the UK economy from Bank of England Governor Mervyn King.

He said he was not confident of a "sustained" recovery and also warned of an uncertain world outlook, although mining shares were higher on optimism over Asia's two leading economies, Japan and China.

The latter's central bank said it believed its economy was unlikely to suffer a "double dip" while the International Monetary Fund also said growth should be robust. Xstrata was one of the top tier's best performers - cheering 13p to 1,044.5p.

Shares in Scottish Gas owner Centrica were down 1 per cent, or 3.7p to 304p, after it posted half-year results in line with market expectations.

Centrica lifted overall operating profits 65 per cent to 1.56 billion but the focus of households was on the 98 per cent rise in British Gas profits to 585 million after the company benefited from the coldest winter in 30 years.

Engineering firm Invensys provided one of the biggest falls - off 13.9p to 279.1p - even though it said it expected to deliver an improved performance in the year. The stock has made strong gains in recent weeks on takeover speculation but lost 5 per cent.

In the FTSE 250 Index, shares in directories firm Yell continued to struggle after the company warned revenues would suffer due to uncertainty over the pace of economic recovery. While its fall in first-quarter revenues and earnings met City expectations, shares fell 19 per cent or 5.7p to 24.5p.

EasyJet shares were also lower - down 7 per cent or 30.9p to 403.6p - as founder Sir Stelios Haji-Ioannou stepped up his attack on the budget airline by threatening to withdraw the rights to the "easy" brand in a row over punctuality.

The airline had earlier said costs would rise by 3 per cent after resolving a "crewing issue".