U.K. Stocks Drop Most in Seven Months on Fed Minutes

U.K. stocks declined the most in almost seven months, as commodity shares fell amid concern the U.S. Federal Reserve will scale back its bond-buying program.

BHP Billiton Ltd. (BHP) and Rio Tinto Group, the world’s largest mining companies, fell at least 3.5 percent. HSBC Holdings Plc (HSBA), Europe’s biggest lender, led banking shares lower. BAE Systems Plc (BA/) advanced the most in five months after saying it plans to buy back shares.

The FTSE 100 Index (UKX) dropped 103.83 points, or 1.6 percent, to 6,291.54 at the close in London. That was the biggest retreat since July 23. The equity benchmark has still rallied 6.7 percent so far this year as U.S. lawmakers agreed on a compromise budget. The broader FTSE All-Share Index lost 1.6 percent today, while Ireland’s ISEQ Index slid 1.5 percent.

“Over the last several weeks, equity markets have been losing touch with reality and the news out of the Fed has been a trigger point for a selloff,” said Stewart Richardson, who helps oversee $100 million as partner and chief investment officer at RMG Wealth Management LLP in London. “Equity markets are being propped up by the Fed printing money, and they will come under pressure if this stops. In the big picture, this will be seen as a major development for markets.”

The volume of shares changing hands in FTSE 100-listed companies was 15 percent higher than the average of the last 30 days, according to data compiled by Bloomberg.

Fed Minutes

Fed officials yesterday expressed concern over whether record monetary easing will drive inflation higher or create asset-price bubbles, according to the minutes of the Federal Open Market Committee’s Jan. 29-30 meeting released yesterday.

Several participants “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” the minutes showed.

A gauge of mining stocks in the FTSE 350 Index fell 3 percent, the biggest retreat since July 23, as copper prices erased their gains for this year.

BHP Billiton, the world’s biggest mining company, slipped 4 percent to 2,097 pence and Rio Tinto, the second-largest, lost 3.5 percent to 3,518.5 pence. Xstrata Plc (XTA) slid 3.2 percent to 1,112 pence.

HSBC retreated 2.3 percent to 716.4 pence. A gauge of banking shares tumbled the most since Sept. 26. Barclays Plc (BARC) declined 4.2 percent to 306.45 pence and Lloyds Banking Group Plc (LLOY) dropped 3.1 percent to 53.97 pence.

BAE Climbs

BAE rallied 4.1 percent to 345.9 pence, the most since Sept. 12, after saying it will buy back 1 billion pounds ($1.5 billion) of shares over the next three years. Europe’s largest arms maker reported 2012 profit that beat analyst estimates.

CSR Plc (CSR) surged 12 percent to 432.7 pence, the most since July 17, as the U.K. mobile-chip maker said it sees first- quarter sales in the range of $215 million to $235 million, beating the average analyst forecast for $204.5 million.

Bumi Plc (BUMI) climbed 3.2 percent to 391.3 pence. Shareholders voted today on co-founder Nathaniel Rothschild’s plan to replace 12 of its 14 directors in his bid to gain control of the company from the Bakrie Group. The outcome will be announced later today.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

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