Bloomberg News

U.K. Stocks Sink to Three-Month Low; Lloyds, RBS, Shell Decline

June 23, 2011

June 23 (Bloomberg) -- U.K. stocks fell to a three-month low as Federal Reserve Chairman Ben S. Bernanke failed to signal further stimulus and European Central Bank President Jean-Claude Trichet said the region’s debt crisis is a threat to banks.

Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Barclays Plc declined more than 3 percent. Royal Dutch Shell Plc and BP Plc followed crude lower after the International Energy Agency said it will release emergency oil stockpiles. Vedanta Resources Plc sank 6.9 percent, leading commodity producers lower, after an analyst downgrade.

The benchmark FTSE 100 Index fell 98.61, or 1.7 percent, to 5,674.38 at the 4:30 p.m. close in London, the lowest since March 16. The gauge has fallen 6.8 percent since Feb. 8 as investors speculated that Greece will default on its debt and central banks struggled with rising inflation and anemic economic growth. The FTSE All-Share Index lost 1.7 percent today and Ireland’s ISEQ Index dropped 0.9 percent.

“It’s the combination of euro-zone debt crisis continuing and the economic news over the last two months, especially out of the U.S., which has been dire,” said Ian Murrell, an analyst at Pritchard Stockbrokers Ltd. in London. “The way the economy is going, it’s going to affect companies’ profitability sooner or later.”

The Fed yesterday reiterated a pledge to keep interest rates near zero and said it will complete a $600 billion bond- purchase program as scheduled this month, even as Bernanke said the recovery is progressing “more slowly” than expected. Fed officials lowered their predictions for U.S. growth and employment this year and next, forecasting that the economy will expand 2.7 percent to 2.9 percent in 2011.

Flashing Red

Trichet said danger signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks. He spoke late yesterday in Frankfurt after a meeting of the European Systemic Risk Board.

Lloyds, Britain’s biggest mortgage lender, slid 3.7 percent to 45.27 pence and RBS retreated 4.9 percent to 36.74 pence. Barclays declined 3.6 percent to 243.35 pence.

Shell, Europe’s largest oil company, fell 2.2 percent to 2,112.5 pence. BP retreated 2.2 percent to 435.5 pence.

Oil fell as much as 6 percent to $89.69 a barrel in New York after the IEA said it will release emergency stockpiles for only the third time in more than three decades as the war in Libya chokes global supplies.

Vedanta Downgrade

Vedanta slid 6.9 percent to 1,832 pence after BofA Merrill Lynch Global Research cut the mining company to “underperform” from “neutral.”

The brokerage reduced its estimate for 2012 earnings per share by 30 percent, citing downgrades for Vedanta’s iron-ore subsidiary. The analysts still set a price estimate for Vedanta shares of 2,350 pence.

Other mining companies declined with metals prices. Xstrata Plc, the biggest exporter of thermal coal, lost 3.6 percent to 1,243.5 pence for its first decline in five days. Antofagasta Plc, the copper producer controlled by Chile’s Luksic family, dropped 3.4 percent to 1,237 pence.

Zinc, tin and copper declined on the London Metal Exchange.

Micro Focus International Plc slid 7.8 percent to 326.5 pence. The U.K. software provider that may be taken over after two profit warnings and the departure of two chief executives within 12 months said revenue may drop this fiscal year.

Imagination Technologies Group Plc plummeted 16 percent to 349.6 pence, the biggest decline since May 2009. Morgan Stanley downgraded the U.K. chip designer to “equal weight” from “overweight,” while Canaccord Genuity cut its recommendation to “sell.”

DS Smith Plc, a London-based paper company, rallied 15 percent to 245 pence, the largest gain since April 2009, after reporting increased earnings.

--Editor: Andrew Rummer

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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