London: Sagging bank and commodity stocks dragged Britain’s top share index down 1.3% by midday on Tuesday as doubts about the summer’s strong rally began to appear.
At 1032 GMT, the FTSE 100 was down 63.68 points at 4,845.22, after closing up 0.8% at 4,908.90 on Friday, having also touched a near 11-month high of 4,944.16 earlier in the session.
Cyclical stocks, more sensitive to resurfacing fears on the global economy were hurt as the reaction to a sharp sell-off in Chinese equities on Monday filtered through to a UK market that was closed for a public holiday that session.
“China is very volatile and it got clobbered on the last day of the month... and that’s what’s causing the angst, with a move to a sense that the markets might be overbought,” said Philip Lawlor, chief portfolio strategist at Nomura.
Banks were the biggest drag on the index, with Lloyds Banking Group down 4.5%.
The Financial Times reported that the UK government had reached a £1 billion ($1.62 billion) deal to enhance the bank’s business lending.
Barclays, HSBC and Royal Bank of Scotland fell between 2.9 and 3.9%.
Also among the financials, RSA Insurance Group was the top blue-chip faller, down 3.4% after reports in the Sunday newspapers that it was considering a rights issue of up to £600 million.
Weak data reinforced the more negative tone at the start of the month with Britain’s manufacturing sector dipping unexpectedly in August and net lending to Britons falling at its sharpest rate since records began in 1993. Commodity stocks were weakened by softer metal and crude prices.
Xstrata, Lonmin, Anglo American and Kazakhmys fell between 3.3 and 4.2%.
BP, Royal Dutch Shell and Cairn Energy fell between 0.9 and 3.1%.
Pharmaceuticals stocks added most to the index, with AstraZeneca up 1.5%, boosted by impressive trial results for experimental blood thinner Brilinta, and as Goldman Sachs raised its share price target for the company.
GlaxoSmithKline and Shire gained 0.4 and 1.0%, respectively.
Britain’s blue-chip index gained 6.5% in August and is up 40.2% since hitting its lowest level in more than six years in March. However, investors started September in a cautious mood.
“Investors will take a long hard look at the rally over August, and when we see a move back to risk aversion, there’s a move back into defensives,” said Richard Hunter, head of equities at Hargreaves Lansdown.
Tobacco and beverage stocks were also in demand as investors homed in on stocks they expect to hold firm in a still challenging economic environment.
British American Tobacco added 1.2% while Diageo added 1.5%.