WEDNESDAY MARKET CLOSE: US growth sparks fear of a rate hike

A rampant return to growth from the world’s biggest economy prompted a spate of selling as traders calculated that the latest figures presaged a rise in interest rates.

Traders reacted to news that the US economy was expanding at an annual rate of 4 per cent in the second quarter. Picture: AP

With policymakers at the Federal Reserve still locked in their monthly meeting as the London market closed, traders reacted to news that the US economy was expanding at an annual rate of 4 per cent in the second quarter.

Tony Cross, market analyst at Trustnet Direct, said: “The initial reaction was one of cheer, but the reality is that this paves the way for the Federal Reserve to push on with tightening monetary policy. The bank’s latest meeting wraps up [overnight] and although no-one expects any real surprises this time round, we are undoubtedly moving closer to that first rate hike.”

The FTSE 100 Index slipped 34.31 points or 0.5 per cent to 6,773.44 despite a boost to the banking sector from Barclays, whose shares rose 4 per cent after better-than-expected results.

Barclays rose 9.83p to 228.4p as broker Jefferies said a better-than-expected trend for impairments helped profits come in 13 per cent ahead of forecasts. Royal Bank of Scotland, which provided its own upside surprise last week, was 8.9p higher at 362.9p, while Lloyds was 0.8p stronger at 76.4p ahead of its own half-year figures today.

Better economic conditions helped Wickes owner Travis Perkins, which was 44p higher at 1,689p after reporting a 14 per cent increase in half-year profits.

Fallers in the top flight included Sainsbury’s, 9.5p lower at 313.8p, and Marks & Spencer, with a decline of 3.7p to 434.3p, as retailers suffered amid a dip in consumer confidence.

Outside the top flight, shares in bakery chain Greggs were 4 per cent higher – up 20.5p to 520.5p – as profits jumped 48 per cent.