Rally halted by gloomy output news

GRIM manufacturing figures on both sides of the Atlantic troubled investors yesterday and derailed a market rally prompted by a deal to tackle the US debt crisis.

The FTSE 100 index shed its earlier gains and closed 40.76 points or 0.7 per cent lower at 5,774.43 after data from the Institute for Supply Management recorded the biggest fall in US manufacturing in two years.

The Footsie had hit a high of 5,913.46 earlier in the session but plummeted more than 100 points when the US markets opened at 2:30pm.

Angus Campbell, head of sales at Capital Spreads, said: "What would not normally be considered as a particularly major piece of data caused sentiment to turn on a sixpence and ruin all the hard work achieved by the bulls earlier in the day."

A key survey in the UK also revealed that the manufacturing sector contracted for the first time in two years last month.

The dollar strengthened on the back of the debt deal - which saw it up against the pound at $1.62. Sterling was up against the euro at €1.14.

The mood in London was initially helped by better-than-expected figures from banking giant HSBC. The bank, which warned it will cut up to 30,000 posts by 2013 as part of an efficiency dive, posted a 3 per cent rise in interim profits to $11.5 billion (7bn), with the lender's Asian arm driving growth.

Lower bad debts also helped the figures, with the only provision to bailed out eurozone countries being made against loans to Greece. Shares were up 2 per cent or 13p at 607.5p.

Better-than-expected results helped product tester Intertek, which saw its share price jump by nearly 4 per cent as half-year profits rose by 14 per cent to more than 110 million. Shares were ahead 75p at 1,990p

The US manufacturing figures fuelled fears over the strength of the global economy and the implications for global demand. This saw mining stocks drop - including Antofagasta down 30p at 1,380p and Vedanta Resources down 50p at 1,720p.

Pub owner Punch Taverns also began trading in its new form as the company split away its managed pubs into a new, separate company. The new business, called Spirit, will consist of 1,372 pubs including the Chef & Brewer and Fayre & Square brands and focus on the eating-out market. The old Punch will contain 5,000 tenant-run pubs, which will gradually be whittled down to about 3,000 over five years. Shares in Punch were trading at 13p after the demerger, while Spirit was at 55p.

Two of Scotland's smallest listed companies were in action, with Dumfries-based security firm Croma Group soaring by 12.7 per cent, up 0.18p to 1.55p, after winning a pair of contracts, and Stirlingshire-based Pinnacle Telecom up 4.2 per cent or 0.02p at 0.38p after it bought a Fife-based IT firm for 1m in an all-share deal.

Livestock auctioneer John Swan was a stand-out stock, jumping 100p or 28.6 per cent to 450p following Friday's full-year results from the Edinburgh-based firm.

Moodiesburn-based sausage skin maker Devro slipped 2.2 per cent or 5.6p to 253p ahead of this morning's interim results after broker Peel Hunt kept its recommendation at "hold".