U.K. Stocks Retreat as Vedanta, Banks Outweigh Rolls-Royce Gain

U.K. stocks retreated as a selloff in mining company Vedanta Resources Plc and bank shares overshadowed brokerage upgrades of Rolls-Royce Group Plc and Carnival Plc.

Vedanta dropped more than 4 percent, falling for a second day, while HSBC Holdings Plc led a gauge of banks lower as U.K. mortgage lending fell. Rolls-Royce, the world’s second-biggest engine maker, jumped 3.5 percent and Carnival, the largest cruise-ship operator, gained 1.8 percent.

The FTSE 100 Index fell 9.17, or 0.2 percent, to 5,569.27 at the 4:30 p.m. close in London, after rallying as much as 0.8 percent earlier today. The FTSE All-Share Index lost 0.1 percent and Ireland’s ISEQ Index decreased 0.2 percent.

“We are in the last few days of the quarter and investors have been squaring up their positions,” said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Plc in Bristol, England. “They’re not seeing any positive catalysts to open up a new position, so it could be a quiet couple of days.”

The FTSE 100 has gained 13 percent since the end of June, poised for the biggest quarterly advance in a year, amid an increase in takeover activity and easing concern about the strength of the global economic recovery.

Vedanta, controlled by billionaire Anil Agarwal, dropped 4.3 percent to 2,165 pence. The shares tracked a selloff in Sterlite Industries (India) Ltd. after a court ordered the nation’s largest copper producer to shutter its only smelter for breaching environment standards.

Banks Decline

HSBC, Europe’s biggest bank, fell 1.6 percent to 649 pence, Lloyds Banking Group Plc lost 1.3 percent to 74.3 pence and Barclays Plc slid 1.2 percent to 305.25 pence.

U.K. mortgage lending fell for a fourth month in August, according to Bank of England figures, adding to signs the housing-market recovery is faltering as the prospect of budget cuts looms.

Separately, Adair Turner, the chairman of the U.K. Financial Services Authority, said big banks should face higher capital requirements than smaller lenders, since the risks in the event of bankruptcy are greater, Les Echos reported, citing an interview.

Rolls-Royce advanced 3.5 percent to 612 pence after Morgan Stanley raised its recommendation for the engine maker to “overweight” from “equal weight” and lifted its share price estimate to 720 pence.

Analysts named the company as their “top pick’ in the European aerospace & defense industry, saying the market is “missing the potential for improved profitability.”

Cruise Demand

Carnival increased 1.8 percent to 2,541 pence after Goldman Sachs Group Inc. raised the cruise liner to “buy” from “neutral” and increased its price estimate for the U.S.-traded shares to $44 from $36, citing a “solid improvement’ in cruise demand.

BP increased 3.9 percent to 421 pence on optimism the oil company may avoid litigation stemming from the Gulf of Mexico oil spill.

The Associated Press cited Representative Steve Scalise, a Louisiana Republican, as saying a possible settlement with the energy company was under discussion. A U.S. Justice Department official said no talks were under way. Stephen Bell, a spokesman for Scalise, said the congressman was referring to the likely process of trying to reach a settlement to avoid litigation, not actual talks.

Wolseley Gains

Wolseley Plc, which has been meeting with investors since reporting results on Sept. 27, jumped 6.4 percent to 1,591 pence, the biggest advance in the FTSE 100.

Liberum Capital raised its 2011 to 2013 earnings forecasts for the world’s largest supplier of heating and plumbing producers and also reiterated its “buy” rating.

“We think full year results confirmed Wolseley’s margin recovery potential,” London-based analyst Charlie Campbell wrote in a report to clients today. “We believe that Wolseley’s businesses have the ability to achieve historic margins again. Most of its businesses still have strong market positions.”

The following stocks either rose or fell in the U.K. and or Irish markets. Stock symbols are in parentheses.

Babcock International Group Plc (BAB LN) rallied 24 pence, or 4.4 percent, to 575.5 pence after the company, which maintains Britain’s submarine fleet, said it remains “confident” in its outlook for the full year and “thereafter.”

Dairy Crest Group Plc (DCG LN) increased 23.6 pence, or 6.8 percent, to 372.6 after the U.K.’s biggest milk and cheese producer said Germany’s Theo Mueller Group acquired a 3 percent stake in the company.

“This indicates that Mueller may make a formal offer for Dairy Crest,” Damian McNeela, an analyst at Panmure Gordon said by phone today. “They might be looking to widen their product base in the U.K.”

Panmure Gordon & Co. (PMR LN) fell 1.5 pence, or 4.8 percent, to 30 pence after the 134 year-old U.K. stockbroker reported a widening first-half loss of 5.96 million pounds ($9.44 million), citing lower commission income.

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