Banks and miners drag FTSE down

By Dominic Lau Reuters - Friday, May 9 05:19 pm

LONDON (Reuters) - The top share index shed 1.05 percent on Friday for its first weekly fall in a month, as a hefty loss in U.S. insurance giant AIG sent financials reeling and miners tracked weaker metal prices.

The FTSE 100 closed down 66.1 points at 6,204.7, for a weekly loss of 0.2 percent. The blue-chip index has gained nearly 15 percent since March 17 when it hit its lowest closing level in 2008 to date, but it is still down 4 percent for the year.

"I don't find it particularly disconcerting. I think the market seems reasonably stable and if ... the financial situation stabilises, it shouldn't be too bad," said Tim Whitehead, head of portfolio services at Redmayne-Bentley.

"I won't be surprised if there is a little bit more weakness in the short term. I am hoping that the 6,000 is now representing the support rather than the resistance level."

Banks shaved 20 points off the index, with Barclays , Royal Bank of Scotland , Lloyds TSB , HBOS , HSBC and Alliance & Leicester losing 1.7 to 2.9 percent.

A rating downgrade from Morgan Stanley also hurt HSBC.

American International Group, the world's largest insurer, reported a record quarterly loss of $7.8 billion (4 billion pounds), largely as a result of writing down assets that have links to subprime mortgages.

Adding to the gloom, home-repossession orders in England and Wales hit the highest level since the early 1990s in the first three months of this year, government figures showed, and experts said the situation was set to worsen.

Among the insurers, Old Mutual shed 3.4 percent, Royal & SunAlliance fell 3.1 percent and Standard Life lost 1.1 percent.

Record oil prices <CLc1> also dampened sentiment as high fuel costs would eat into company's margins and households' disposal income.

Topping the FTSE 100 losers, Carphone Warehouse sank 7.3 percent and extended the previous session's fall as traders cited continued market disappointment about the firm's deal with U.S.-based Best Buy .

Miners also took a beating in line with falling metal prices. BHP Billiton , Rio Tinto , Xstrata , Anglo American and Antofagasta all fell between 1.1 and 4 percent.

Kazakhmys slumped 6.7 percent to 1,786 pence. The miner rejected an approach worth 1,550 pence per share from Eurasian Natural Resources Corp , whose shares rose 1.5 percent.

BROKER UPGRADES HELP

WM Morrison Supermarkets , however, advanced 0.7 percent after JPMorgan upgraded its price target and reiterated its "overweight" rating. Peer Sainsbury added 0.9 percent after a Panmure price target hike.

Thomas Cook gained 1.2 percent after Credit Suisse upgraded Europe's second largest travel firm to "outperform" from "neutral".

The broker also initiated its coverage of TUI Travel with an "outperform" rating. TUI Travel rose 1.1 percent.

British Energy lost 2 percent as hopes of a bidding war faded as sources said German utility RWE would not make a bid by the day's deadline. Spain's Iberdrola also had not made an offer for British Energy, an industry source said. <ID:nL09843676>

Despite strong crude prices, oil shares succumbed to profit taking. BP , Royal Dutch Shell and gas producer lost between 0.4 and 3 percent.

"Equities are fundamentally very cheap and UK equities especially so. UK GDP growth is in the process of slowing but equity markets are discounting a significantly worse outcome than in the early 1990s. Such an outcome appears highly unlikely to us," Goldman Sachs said in a report.

(Editing by Quentin Bryar)

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