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U.K. Stocks Drop for Second Day as Investors Consider Fed

U.K. stocks fell, posting their biggest two-day drop in 10 months, as investors digested this week’s monetary-policy announcements from the Federal Reserve.

HSBC Holdings Plc (HSBA), Europe’s largest bank, slid 2.1 percent. International Consolidated Airlines Group SA (IAG) declined 2 percent as it canceled some of its flights following a disruption caused by one of its planes at Heathrow airport. Next Plc (NXT) retreated 2.4 percent as Morgan Stanley cut its recommendation on the shares.

The FTSE 100 Index (UKX) slipped 42.45 points, or 0.6 percent, to 6,654.34 at the close in London. The equity benchmark sank 2.1 percent yesterday amid concern the Fed will scale back stimulus and as Chinese manufacturing unexpectedly contracted. The measure lost 1 percent this week, trimming its rally in 2013 to 13 percent. The broader FTSE All-Share Index lost 0.7 percent today, while Ireland’s ISEQ Index was little changed.

“It looks like we’ll either see an economic downturn in the U.S. or monetary stimulus is going to slow,” said Guy Foster, London-based head of portfolio strategy at Brewin Dolphin Securities Ltd., which oversees about $39 billion. “We’ve seen a withdrawal of forward guidance from the Fed as it refuses to confirm when tapering might start. That uncertainty should take some heat out of equities.”

Durable Goods

In the U.S., a Commerce Department report showed that orders for durable goods climbed 3.3 percent in April, following a revised 5.9 percent drop in March. Economists surveyed by Bloomberg had forecast a gain of 1.5 percent.

In Germany, a measure of business confidence rose in May for the first time in three months. The Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 105.7 from 104.4 in April. Economists had predicted that the gauge would remain unchanged.

HSBC slipped 2.1 percent to 726 pence after the Daily Telegraph reported, without citing anyone, that the lender’s $1.9 billion settlement with the U.S. government in a money-laundering case may be rejected by a judge. HSBC said in a statement that it supports the steps taken by regulators.

“The last two years have been extremely damaging to HSBC’s reputation,” Chairman Douglas Flint said at a shareholder meeting. “The circumstances leading to major U.S. regulatory and law-enforcement investigations of HSBC caused us grave concern.”

Royal Bank of Scotland Plc fell 3 percent to 327 pence.

British Airways

IAG, which owns British Airways, slipped 2 percent to 273 pence. The airline canceled all its short-haul services through 4 p.m. after one of its planes was evacuated on the runway at London’s Heathrow airport. British Airways said it will carry out a full investigation of what it called an “engine technical fault.”

Next dropped 2.4 percent to 4,580 pence as Morgan Stanley cut its recommendation on the shares to underweight, the equivalent of sell, from equal weight. The brokerage cited high valuations after a rally. Next traded at 15 times estimated earnings as of May 21, when it climbed to a record level, from 13 times earnings in February, according to data compiled by Bloomberg.

Smiths Group Plc advanced 1.5 percent to 1,355 pence after saying in a trading update that it expects higher second-half sales compared with a year earlier, driven by an increase in orders. So-called underlying revenue increased in all of its divisions in the first nine months of the year, the maker of airport-security scanners said.

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

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