US benefits blow chills the market

London's leading shares slipped into the red yesterday as a surprise rise in US benefit claims took the gloss off decent half-year numbers at UK insurance giant Aviva.

The FTSE 100 Index gave up early gains to finish almost 0.4 per cent down at 5,365.78 after US unemployment claims confounded expectations, sparking more recovery doubts and sending Wall Street's Dow Jones Industrial Average down early on.

CMC Markets analyst Michael Hewson said: "Equity markets have struggled to make any headway in a mixed bag of a day.

"The release of US weekly jobless claims disappointed by some margin. As a means to reassure markets ahead of (today's] US payroll figures it is of little importance, but symbolically it doesn't reassure."

Aviva still topped the risers board with a 7 per cent or 26.4p gain to 394.3p as it increased its dividend on the back of a third consecutive quarter of sales growth and profits of 1.27 billion, a rise of 21 per cent on a year earlier.

The pound was flat at $1.58 against the dollar and €1.20 against the euro as the latest no-change move on interest rates from the Bank of England offered no surprises.

The interim bank reporting season has so far confirmed the sector's return to health following the financial crisis, with even embattled Royal Bank of Scotland - down 0.1p at 52p - expected to show profits today.

Lloyds, which was the London market's biggest riser on Wednesday following a solid return to the black, added a further 1.5p to 76p. Barclays' results were in line with expectations, but shares fell 15.85p to 324p as investors sealed in profits following a 31 per cent hike in the past month.

The bank reported a 44 per cent leap in half-year profits to 3.9bn - up 22 per cent on an underlying basis - but said Barclays Capital revenues dropped 15 per cent during the second quarter.

As well as the surge for Aviva, fellow insurer and More Than parent company RSA Insurance made gains after its half-year figures also impressed.

Shares rose 3 per cent or 5p to 133.5p as RSA joined Aviva in lifting its dividend and highlighted "good top line momentum" despite a 3 per cent fall in first-half operating profits as a result of one-off claims costs.

Prudential, which is also expected to deliver a dividend boost in results next week, joined the insurance sector rally with a rise of 13.5p to 582p.

On the fallers board, shares in consumer products group Unilever were under pressure after it said it may find it hard to recoup rising commodity costs. With underlying sales growth also slowing in the second quarter. Shares dropped 5 per cent or 95p to 1,736p.

The pressure on other consumer-facing firms due to the twin threats of weak demand and rising costs was again evident in the top flight. Tesco dropped 1.8p to 399.4p while Costa coffee shop owner Whitbread fell 28p to 1,409p.

Outside the top flight, shares in Ladbrokes jumped 4 per cent - up 6.8p to 145.5p - after new chief executive Richard Glynn reported a 5 per cent rise in operating profits and flagged the potential for further operational improvement.