Drop in Royal Mail puts FTSE under pressure

By Alistair Smout EDINBURGH (Reuters) - FTSE snapped a four-day rally on Wednesday as falling iron ore prices hit mining stocks and trading updates from Royal Mail and testing firm Intertek disappointed investors. Hit by its heavy weighting in commodity-related stocks, the FTSE 100 underperformed European peers, dropping 12.53 points, or 0.2 percent, to 6,696.60 points. Royal Mail Group reversed slight early gains to fall 8.4 percent to the bottom of the index. Although Royal Mail's 21 percent decline in six-month operating profit to 279 million pounds was less severe than many analysts had feared, it warned that online retailer Amazon's delivery service will more than halve the growth potential for the parcel business of the formerly state-owned company. "The outlook is not so positive because of the impact of competition in parcels, where Royal Mail is at a disadvantage," said Jasper Lawler, analyst at CMC Markets. "Amazon just want to expand as quickly as possible, and long term they will be able to control costs better if they don't have to rely on a third party like the Royal Mail." Shares in miners Anglo American, Rio Tinto and BHP Billiton all fell more than 2 percent as China's iron ore futures slid nearly 5 percent to a record low on Wednesday due to a supply glut. Overall, basic materials companies knocked nearly 9 points off the FTSE 100. The index has risen 10 percent since hitting a 16-month low in October, helped by some better-than-expected corporate earnings and a new wave of deal making in Europe and the United States. Fawad Razaqzada, technical analyst at Gain Capital, said the market had the momentum to continue higher after pausing near the 200-day moving average at 6,693. "I would now be looking to prior highs we achieved in September, around 6,900 as my next target over the medium term," he said. Product-testing company Intertek fell 7.8 percent after it said it expected full-year organic revenue growth and operating margins to be in line with the previous year. (Editing by Ruth Pitchford and Crispian Balmer)