U.K. stocks declined after the FTSE 100 Index posted its best week in nine last week. African Barrick Gold Ltd. and Royal Dutch Shell Plc led losses.
The benchmark FTSE 100 fell 25.39, or 0.4 percent, to 5,849.96 at the 4:35 p.m. close in London. The FTSE All-Share Index dropped 0.4 percent to 3,020.33, while Ireland’s ISEQ Index added 0.8 percent, even as Irish bank stocks plunged.
The FTSE 100 jumped 3.5 percent last week, the best weekly showing since the 4.4 percent on Sept.3, after the Federal Reserve pledged to buy more securities to feed an economic rebound. The measure is now trading near its most expensive relative to expected earnings since April, according to Bloomberg data, after touching the highest level in more than two years last week.
“Having exhausted conventional monetary policy, the Federal Reserve is busily exercising its two remaining options: clutching at straws, and pushing on strings,” Tim Price, director of investments at PFP Group in London, wrote in a note today. “In the short term, though, stock markets and indeed most other financial assets have reacted in classic Pavlovian fashion: ring the dinner bell announcing fresh liquidity, and they will rally in response. This should give equity investors pause.”
The FTSE 100 Index is nearing “overbought” levels, according to the Relative Strength Index.
The FTSE 100’s 14-day RSI, which tracks momentum by comparing closing prices with daily trading ranges, ended last week at 69.77. When the RSI rises above 70, technical analysts say the underlying security is “overbought” and likely to fall. The measure last closed above 70 on April 6, 2010, after which the FTSE 100 slid 17 percent through July 1.
“The RSI rising to an overbought level in an uptrend environment means investors shouldn’t buy stocks before the market consolidates,” said Achim Matzke, head of global index and technical research at Commerzbank AG in Frankfurt. “It is not a signal to sell in the short term. The indicator will fall again as the uptrend is intact.”
African Barrick retreated 1.9 percent to 538.5 pence. The shares were cut to “sell” from “neutral” at Goldman Sachs Group Inc., which said it sees “better value elsewhere in the sector.”
Shell dropped 1.2 percent to 2,058.5 pence. Europe’s largest oil company is selling a 10 percent stake in Woodside Petroleum Ltd. for $3.35 billion, freeing up funds to support a six-fold increase in its Australian natural gas production.
Woodside may become a takeover target after Shell’s disposal, analysts said. Woodside may be an acquisition target for BHP Billiton Ltd., analysts at UBS AG said Nov. 4 in a report. BHP, the world’s largest mining company, declined to comment when contacted today. Its shares fell 0.8 percent to 2,430.5 pence.
Gartmore Group Ltd. plunged 15 percent to 107 pence. The U.K. money manager that began trading its shares in December said Chief Investment Officer Dominic Rossi is leaving to join another company and leading fund manager Roger Guy is retiring from “day-to-day” fund management at the end of 2010. Gartmore has hired Goldman Sachs to advise on a sale or merger, it added.
Bank of Ireland Plc decreased 4.2 percent to 41 cents, taking the loss in 2010 to 52 percent. Irish Life & Permanent Plc, the country’s biggest mortgage lender, slumped 16 percent to 88 cents.
The cost of insuring against default on Ireland’s banks surged to a record, as the country’s bonds tumbled for the 10th consecutive day and the extra yield investors demanded to hold the debt instead of benchmark German bunds rose to an all-time high on concern the nation is struggling to redress its budget deficit.
Royal Bank of Scotland Group Plc, the bank controlled by the U.K. government, slid 3 percent to 43.64 pence. Commerzbank AG, Germany’s second-biggest lender, slumped the most since May in Frankfurt trading after reporting a third- quarter profit that fell short of analysts’ estimates.
Compass Group Plc, the world’s largest catering company, rose 2.6 percent to 537 pence as it topped levels that technical analysts say indicate further gains. The shares today rose above the 50-day and 100-day moving averages.
Inmarsat Plc jumped 3 percent to 695 pence, the steepest advance in two months. The biggest provider of satellite services to the maritime industry said third-quarter operating profit rose 18 percent on “strong” demand for aeronautical and leasing services.
Rolls-Royce Group Plc rose 2.7 percent to 607 pence, reversing an earlier loss of as much as 4.7 percent, after saying the cause of the Trent 900 blowout that grounded Qantas Airways Ltd.’s fleet of A380s superjumbos is specific to that engine model, as it seeks to dispel concern about its flagship turbine family.
The A380 engine failure on the Nov. 4 Qantas flight is unconnected to the Trent 1000 blast that happened on Aug. 2 “during a development program with an engine operating outside normal parameters,” the company said in a statement. The shares slumped 8.7 percent last week after a Qantas Boeing Co. 747 aircraft also equipped with a Rolls-Royce engine encountered an engine failure the day after the A380 incident.
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