U.K. Stocks Fall for Second Day, Trimming Annual Gains

U.K. stocks dropped for a second day, trimming their annual gains, as concern that U.S. lawmakers haven’t yet reached a budget deal overshadowed growth in Chinese manufacturing and improving British business sentiment.

Marks & Spencer Group Plc (MKS) retreated 0.9 percent as the Financial Times reported U.K. retailers expect a challenging year in 2013. Premier Foods Plc (PFD), owner of the Hovis bread and Bisto gravy brands, slid the most in five months.

The FTSE 100 Index (UKX) fell 27.56 points, or 0.5 percent, to 5,897.81 at the close in London. The gauge still climbed 5.8 percent in 2012 as the European Central Bank set out a program of unlimited bond purchases to support the euro area’s weakest economies. The broader FTSE All-Share Index (ASX) also retreated 0.4 percent today, while Ireland’s ISEQ Index gained 0.4 percent.

“We’ve been relatively complacent going into the new year under the assumption that everything in the States will just be wrapped up and it’s obviously not going to happen today,” Adam Carroll, U.K. equity fund manager at NFU Mutual Insurance Ltd., which oversees about $20 billion, said by phone from Stratford- Upon-Avon, England. “Investors are getting impatient; it’s more of a political game being played at the moment and we never like to see political games being played.”

Trading in U.K. stocks closed at 12:30 p.m. on the last day of the year. The volume of shares changing hands in FTSE 100 companies today was 40 percent lower than the 30-day average, according to data compiled by Bloomberg.

Budget Talks

The U.S. Senate will convene at 11 a.m. Washington time today to discuss measures to avert more than $600 billion in automatic tax increases and spending cuts to come into effect tomorrow, known as the fiscal cliff. Talks between Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell that began Dec. 28 stalled yesterday because of disputes over income tax rates, the estate tax and other issues.

China’s manufacturing unexpectedly expanded at the fastest pace in 19 months in December, boosting optimism that a recovery in the world’s second-biggest economy is gaining traction. The final reading of a Purchasing Managers’ Index was 51.5 in December, according to a statement from HSBC Holdings Plc and Markit Economics today. That compared with the 50.9 preliminary reading on Dec. 14 and a final 50.5 for November. A level above 50 indicates expansion.

In the U.K., executives’ confidence for 2013 improved this month indicating the risk of a triple-dip recession has receded, according to a Lloyds Bank report. An index of business sentiment rose to 40 from 35 in November, the unit of Lloyds Banking Group Plc said in the report today. A gauge measuring the outlook for the economy increased to 20 from 17.

Annual Advance

The 5.8 percent advance in the FTSE 100 this year compares with a 14 percent rally in the Stoxx Europe 600 Index (SXXP) and a 12 percent increase in the Standard & Poor’s 500 Index. The gain on the U.K. benchmark ranked 21st among 24 developed markets tracked by Bloomberg.

A gauge of banks in the FTSE 350 surged 34 percent in 2012 for the biggest jump in 15 years, even as regulators fined some lenders for rigging the London interbank offered rate, or Libor. Lloyds Banking Group Plc soared 85 percent for the biggest annual gain in the FTSE 100. Royal Bank of Scotland Group Plc (RBS) climbed 61 percent, and Barclays Plc surged 49 percent.

A gauge of metal producers accounted for the biggest annual losses as China’s economy cooled. The FTSE 350 Industrial Metals & Mining Index (F3METL) slumped 29 percent as Evraz Plc, the steelmaker part-owned by billionaire Roman Abramovich, tumbled 31 percent.

Marks & Spencer, the U.K.’s largest clothing retailer, fell 0.9 percent to 382.3 pence today. Andy Clarke, chief executive officer of Wal-Mart Stores Inc.’s U.K. Asda chain, said he expects 2013 to be challenging, according to an FT report.

Premier Foods dropped 7.6 percent to 113 pence for the biggest decline on the FTSE All-Share Index today, trimming this year’s gain to 94 percent.

Rexam Plc (REX) retreated 0.1 percent to 436 pence as the U.K. beverage can maker said Chinese authorities approved the sale of its personal care unit.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

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

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