Scott Reid: Bargain hunters move in as Footsie slips

London's leading share index surrendered Monday's modest gains to edge lower yesterday with weakness in commodity issues countering strength in defensive stocks as investors' risk appetite faded.

At the close, the benchmark FTSE 100 index was down 10.81 points, or 0.2 per cent, at 5,661.59, having earlier touched its lowest level in a week, dipping below the 5,600 level.

Miners Xstrata, Kazakhmys, and Lonmin were among the top blue-chip fallers, down between 2.1 and 2.6 per cent, as metal prices eased with a strengthening dollar on short-covering as investors awaited likely indications there will be fresh quantatitive easing (QE) from the US Federal Reserve. US blue-chips were lower at the London close ahead of the latest Fed minutes release.

In the UK, economists said more QE was still on the cards, despite new figures showing UK inflation well above target at 3.1 per cent during September. The cost of living, which has held for three months now, is still well above the Bank of England's 2 per cent target.

Further QE talk weakened the pound, which was down against the dollar and the euro at $1.58 and €1.14 respectively. David Jones, chief market strategist at IG Index, said: "Blue-chips came under pressure first thing following signs of China once again trying to keep growth under control by increasing reserve requirements for some lenders, and weakness in the price of copper quickly knocked points off some of the big mining stocks.

"However, once again we have seen investors happy to bargain hunt on weakness - 5,600 proved to be a good floor for the FTSE and the index reversed direction to claw back all the early losses."

With oil prices slipping 1 per cent to just under $82 a barrel, BP fell 3.2p to 429.2p and Royal Dutch Shell dropped 4p to 1,913p.As traders backed defensive stocks, water firm Severn Trent saw a gain of 13p to 1,345p, British American Tobacco climbed 22.5p to 2,411p and pharmaceutical firm AstraZeneca was up 26p at 3,320.5p.

Security group G4S was also 2.7p higher at 256.6p after Exane BNP Paribas started its coverage of the stock with a bullish note and said the Footsie company had a better business mix than its rivals.

Elsewhere in the top flight, technology firm Autonomy continued to struggle in the wake of last week's revenues warning, falling 41p to 1,444p.

In corporate results, home shopping firm N Brown rose 2 per cent in the FTSE 250, up 10.2p to 253p, after it posted a 5.5 per cent rise in first-half profits to 44.1 million and reported encouraging sales trends in recent weeks.

Demand in the 65-and-over market fell sharply as a result of the impact of low interest rates on savings, but sales of its younger brands targeted at under 45s were higher, with Simply Be and menswear range Jacamo among those selling well.

Punch Taverns moved in the opposite direction, sliding 11 per cent or 9.9p to 80p after its full-year underlying profits of 131m came in short of some City hopes. The company also announced plans to sell a further 1,300 pubs amid continued difficult trading conditions.