U.K.'s FTSE 100 Tumbles Most Since November; Kesa, Morrison Lead Retreat

U.K. stocks slid the most since November as earnings from Goldman Sachs Group Inc. and Wells Fargo & Co. failed to beat analysts’ projections and U.S. housing starts fell to a one-year low.

Kesa Electricals Plc, Europe’s third-largest electronics retailer, plunged 8.9 percent after saying profit will be at the lower end of estimates. William Morrison Supermarkets Plc declined as Morgan Stanley advised selling the retailer’s shares. Pearson Plc and William Hill Plc jumped more than 4 percent after giving profit forecasts. Tate & Lyle Plc soared 4.9 percent amid takeover speculation.

The benchmark FTSE 100 sank 79.73, or 1.3 percent, to 5,976.7 at the 4:30 p.m. close in London, declining from a 2 1/2-year high. The gauge has rallied 70 percent since March 2009 amid measures from governments and central banks to restart economic growth. The FTSE All-Share Index fell 1.2 percent today and Ireland’s ISEQ Index slipped 1.3 percent.

“The market has had a nice run, so we are due some pullback,” said Atif Latif, director of trading at Guardian Stockbrokers in London. “Maybe people are just taking a step back and waiting.”

The Euro Stoxx 50 Index of euro-region equities dropped 0.7 percent today after Lars Feld, a designated economic adviser to the German government, was cited as saying in an interview with Handelsblatt newspaper that Germany should set funds aside to prepare for a Greek default.

Goldman Sachs

Goldman Sachs reported fourth-quarter earnings of $3.79 a share, in line with the average expectation in a Bloomberg survey of analysts. Wells Fargo, the largest U.S. home lender, posted a fourth-quarter profit that missed some analysts’ estimates as income from mortgage banking weakened.

Even so, 17 of the 24 companies in the Standard & Poor’s 500 Index that have reported quarterly profit since Jan. 10 have topped analysts’ predictions, according to Bloomberg data.

“If U.S. earnings keep coming out the way they have and the authorities keep pumping money into the system, I don’t see why market momentum could not carry on,” Latif said.

U.S. builders began work on fewer homes than projected in December, a sign the industry that triggered the recession continued to struggle. Housing starts fell 4.3 percent to a 529,000 annual rate, the lowest level since October 2009, Commerce Department figures showed today. The median forecast in a Bloomberg News survey called for a 550,000 rate.

The 17 percent jump in building permits, a proxy for future construction, may reflect attempts to get approval before building-code changes took effect at the beginning of this year.

U.K. Jobless Claims

In the U.K., jobless claims unexpectedly dropped in December to the lowest in 21 months and unemployment declined as Britain’s economic recovery persisted before public spending cuts take effect, a report showed today.

Kesa sank 9.8 percent to 136 pence, the biggest drop since 2008, after saying profit before tax would be at the lower end of market expectations as sales declined over the Christmas period. Revenue at stores open at least a year fell 4 percent in the 11 weeks to Jan. 18, the London-based retailer said.

Morrison lost 1.4 percent to 267.1 pence, the first retreat in four days. Morgan Stanley cut the shares to “underweight” from “equal weight,” and reduced its price estimate to 240 pence a share from 295 pence.

“We are becoming increasingly concerned about its prospects in the short, medium and longer term,” the brokerage wrote in a report.

British Airways

British Airways Plc dropped 4.2 percent to 287.5 pence, the steepest drop in the FTSE 100. Chief Executive Officer Willie Walsh may face a sixth round of walkouts by 11,000 cabin crew that threatens to cast a shadow over a merger with Spain’s Iberia Lineas Aereas de Espana SA.

The Unite union plans to announce the result of a month- long strike poll of flight attendants Jan. 21, the same day British Airways ends almost 25 years as a mainstay of the U.K. stock market before combining with Iberia next week.

HMV Group Plc fell 2.9 percent to 25.5 pence as the music retailer said credit insurers are reviewing the level of cover they provide for the company after the peak trading period.

“Whilst this has resulted in the reduction in the availability of credit insurance to certain of the company’s suppliers, our business remains a core channel to market for them,” HMV said. The company said it has “excellent relations” with suppliers and no difficulty obtaining stock.

Pearson, William Hill

Pearson rallied 4.5 percent to 1,051 pence, the biggest gain since July and best performance in the FTSE 100. The owner of the Financial Times and Penguin books raised its 2010 profit forecast for the third time, citing growth in emerging markets and digital services. Adjusted earnings will be about 76 pence per share, a 16 percent increase, the company said.

William Hill surged 7 percent to 189 pence, the largest increase since October 2009. The U.K. bookmaker with about 2,350 shops said full-year operating profit will be at the “top end” of analyst estimates.

Tate & Lyle jumped 4.9 percent to 564.5 pence, the highest price in almost three years, amid speculation Cargill Inc. might bid for the maker of the low-calorie sweetener Splenda.

Cargill, a closely held food and agriculture business in the U.S., said yesterday it would divest its stake in fertilizer producer Mosaic Co. over the next two years. The deal could bring Cargill as much as $24 billion, according to MF Global.

“We now see Cargill as a potential bidder for Tate & Lyle,” Andy Ford, an analyst at MF Global in London, wrote in a report.

JD Wetherspoon Plc advanced 5.2 percent to 464.7 pence, the highest since May. The pub chain said like-for-like sales in the 25 weeks to Jan. 16 increased 2.3 percent, while total company sales increased 7.7 percent.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.