Bloomberg News

U.K. Stocks Fall as Economy Shrinks, ECB Blocks Greek Debt Deal

January 26, 2012

Jan. 25 (Bloomberg) -- U.K. stocks fell for a second day as a report showed that Britain’s economy contracted in the fourth quarter and the European Central bank was said to oppose a Greek debt restructuring.

Banks retreated, with Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc each losing at least 1 percent. ARM Holdings Plc climbed 3 percent as Apple Inc. posted quarterly profit that more than doubled. Weir Group Plc advanced 1.9 percent after the engineering company announced its second U.S. takeover in two months.

The FTSE 100 Index decreased 28.9, or 0.5 percent, to 5,723 at the close of trading in London, extending yesterday’s 0.5 percent slide. The gauge has still gained 2.7 percent this year, buoyed by better-than-estimated U.S. economic data and falling bond yields in the euro area. The FTSE-All Share Index retreated 0.4 percent today, while Ireland’s ISEQ Index lost 0.2 percent.

“Debt talks over Greece are clouding the markets in Europe today as there might not be any voluntary solution in the end,” said Didier Abbato, a vice president and senior trading adviser at Saxo Bank in Copenhagen. “If there’s no private-sector agreement the Greeks may impose a ‘collective action clause’ to impose a debt rescheduling, which will de facto be a default.”

Greek Bonds

The ECB remains firmly opposed to any restructuring of its Greek bond holdings as the debt was acquired for monetary policy purposes, according to two people familiar with the Governing Council’s stance.

While the ECB faces pressure to join private-sector investors in taking losses on Greek debt, the central bank sees this as potentially damaging to confidence in the institution if it were to take part, said the people, who declined to be identified because the matter is confidential.

The U.K.’s gross domestic product shrank 0.2 percent in the fourth quarter, leaving the economy on the brink of another recession, according to data published today by the Office for National Statistics. Economists had predicted GDP would fall 0.1 percent, according to the median of 33 forecasts in a Bloomberg News survey.

All nine Bank of England policy makers voted unanimously for no change to the 75 billion-pound ($117 billion) stimulus program, due to finish this month, according to minutes of the central bank’s Jan. 11-12 meeting published today. Governor Mervyn King said yesterday that slower inflation gives policy makers room to increase bond purchases to guard against a “renewed severe downturn.”

Fed Rates

In the U.S., the Federal Reserve will release rate forecasts for the first time today. The central bank will keep interest rates at a record low of 0.25 percent, according to 111 economists surveyed by Bloomberg. Business and political leaders gathered in Davos, Switzerland, today for the start of the World Economic Forum’s annual meeting.

Lloyds Banking fell 2.4 percent to 30.9 pence. RBS, the biggest government-owned British lender, dropped 1.1 percent to 26.75 pence.

Hunting Plc slid 4.5 percent to 792.5 pence. The U.K. oil and gas engineer was downgraded to “sell” from “hold” at Liberum Capital.

ARM, the U.K. owner of chip technology used in Apple.’s iPhone and iPad, rose 3 percent to 597.5 pence.

Apple shares rallied 6.7 percent at 11:44 a.m. in New York trading after the world’s biggest technology company by market value reported per-share profit for its fiscal first quarter of $13.87, more than it had earned in any full year before 2010. The company forecast revenue of about $32.5 billion and profit of $8.50 a share for its fiscal second quarter, beating analysts’ estimates.

Weir, Ashmore

Weir advanced 1.9 percent to 1,964 pence after agreeing to buy Novatech LLC for $176 million. The purchase of the maker of well-service pump valves and valve seats for upstream oil and gas applications is the second U.S. acquisition in two months by Weir. The Glasgow, Scotland-based company bought Seaboard Holdings for $675 million in November.

Ashmore Group Plc rose 4.2 percent to 370 pence after Barclays Plc raised its recommendation on the asset manager’s shares to “overweight” from “equal weight.”

--With assistance from Corinne Gretler in Zurich. Editors: Will Hadfield, Andrew Rummer

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

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


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