U.K. Stocks Fall Second Day as Investors Weigh U.S. Deal

U.K. stocks fell for a second day as investors weighed a bipartisan budget deal in the U.S. to limit automatic spending cuts and avoid another government shutdown.

BAE Systems Plc rose 2.6 percent as the agreement provided $31.5 billion of relief from forced reductions in spending by the U.S. Defense Department. Imagination Technologies Group Plc (IMG) slumped 24 percent to a four-year low after reporting first-half sales that missed analysts estimates. Royal Bank of Scotland Group Plc (RBS) retreated 2.9 percent as Nathan Bostock resigned as chief financial officer.

The FTSE 100 Index (UKX) lost 15.59 points, or 0.2 percent, to 6,507.72 at the close of trading in London. The gauge slid 0.6 percent yesterday after data showed the expansion in Chinese industrial production slowed. The broader FTSE All-Share Index fell 0.2 percent and Ireland’s ISEQ Index retreated 0.8 percent.

“The market is sending mixed signals which is quite right as views are polarized on if the Fed will taper bond purchases or not,” Jeremy Batstone-Carr, head of research at Charles Stanley Group Plc in London, said in a telephone interview.

U.S. Congressional negotiators reached a budget accord to limit automatic spending cuts for the next two years, remove the risk of a government shutdown like the one in October and cut the deficit by as much as $23 billion. Both the Senate and the House of Representatives must pass the deal.

The compromise, worked out between chief negotiators Senator Patty Murray and Representative Paul Ryan, would set spending at about $1.01 trillion in the current fiscal year, higher than the $967 billion required in a 2011 budget plan.

Defense Prospects

BAE rose 2.6 percent to 426 pence, its biggest gain since July 4. Liberum Capital advised investors to buy defense-industry stocks, citing the U.K. military-aircraft maker as a beneficiary of the U.S. budget agreement. BAE (BA/) derives about 30 percent of its revenue from U.S. government contracts, according to data compiled by Bloomberg.

Imagination Technologies slumped 24 percent to 190 pence, its lowest price since October 2009. The U.K. designer of chip technology for devices said sales rose to 85.2 million pounds ($140 million) in the period to Oct. 31, missing the 93.3 million average estimate compiled by Bloomberg.

RBS retreated 2.9 percent to 326.9 pence. The lender said Bostock informed the board of his plans to step down and to send in a formal resignation soon. He will remain in his role until the handover, said RBS, which didn’t name a successor.

The volume of shares changing hands in FTSE 100-listed companies was 11 percent lower than the average of the past 30 days, according to data compiled by Bloomberg.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

To contact the editor responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net

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