U.K. Stocks Retreat Before EU Summit; Banks, IAG Shares Decline

U.K. stocks (UKX) dropped, sending the FTSE 100 Index lower for the first time in four days, as investors await the outcome of this week’s European Union summit in Brussels.

Royal Bank of Scotland Group Plc (RBS) led a selloff in banks, tumbling 4.4 percent. Mining shares fell, reversing earlier gains. International Consolidated Airlines Group SA retreated amid a report pilots at its Iberia unit plan to strike work.

The FTSE 100 declined 52.27, or 0.9 percent, to 5,516.45 at 3:49 p.m. in London, after earlier rallying as much as 1.1 percent. The FTSE All-Share Index also slipped 0.9 percent today, while Ireland’s ISEQ Index rose 0.4 percent.

“The overall picture remains the same,” said Ben Critchley, a sales trader at IG Index. “Until a genuinely convincing message can be put forward that will actually draw a line under the sovereign-debt woes, traders are right to remain cautious as we approach the year end.”

Stocks initially rallied on speculation euro-area policy makers will agree to a bigger bailout effort for the region’s most-indebted countries at the summit. The Financial Times reported policy makers may run the temporary bailout fund and a proposed permanent facility simultaneously.

Germany today rejected any such proposal as Chancellor Angela Merkel’s government expressed pessimism over the outcome of the summit that begins tomorrow.

Fiscal Union

Merkel and French President Nicolas Sarkozy will push for rewriting EU treaties to tighten control of national budgets, which has won the backing of U.S. Treasury Secretary Timothy F. Geithner, who urged governments to work with central banks to erect a “stronger firewall” to end the debt crisis.

The FTSE 100 surged 7.5 percent last week after six central banks including the Bank of England took action to ease the debt crisis and China increased cash supply for its banks to speed up economic growth. The gauge has still lost 9.7 percent from this year’s high on Feb. 8.

RBS fell 4.4 percent to 21.59 pence. Barclays Plc (BARC) declined 3 percent to 182.3 pence and Lloyds Banking Group Plc (LLOY) lost 2.7 percent to 26.38 pence.

IAG, the parent company of British Airways, declined 3.3 percent to 149.2 pence. Pilots of IAG’s Iberia unit will go on strike on Dec. 18 and 29, Efe newswire reported citing Justo Peral, the chairman of the Sepla-Iberia union.

Airlines’ Profits

Separately, the International Air Transport Association forecast that net income for the global airlines industry will drop to $3.5 billion in 2012 from $6.9 billion this year.

EasyJet Plc (EZJ) slid 1.1 percent to 375.1 pence and Ryanair Holdings Plc (RYA) lost 1.4 percent to 3.75 euros in Dublin trading.

Mining companies fell with commodity prices amid continued concern Europe’s sovereign-debt crisis is worsening. Kazakhmys Plc (KAZ) retreated 2.8 percent to 937.5 pence. Xstrata Plc (XTA) declined 2.2 percent to 1,025 pence and Anglo American Plc declined 1.5 percent to 2456 pence.

ICAP (IAP) Plc dropped 6 percent to 344.5 pence after Morgan Stanley downgraded the inter-dealer broker’s shares to “equal weight” from “overweight.”

Elsewhere, Micro Focus International Plc (MCRO) rallied 6 percent to 404.2 pence on the broader All-Share Index after posting first-half revenue and earnings per share that topped analysts’ estimates. The software provider said it is aiming to “maintain the momentum” in the second half.

AZ Electronic Materials SA (AZEM) dropped 6 percent to 237.2 pence after UBS AG sold 40 million shares in the company on behalf of the Carlyle Group and Vestar Capital Partners.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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

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