U.K. stocks declined, following the biggest two-day rally for the FTSE 100 Index since January, after U.S. factory orders missed forecasts and concern grew about Spain’s economy.
Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc paced European banks lower as Spanish bond yields climbed. Compass Group Plc lost 1.8 percent after Morgan Stanley downgraded the caterer. Cairn Energy Plc paced advancing shares, rallying 4 percent, after agreeing to buy Agora Oil & Gas AS to expand in the North Sea.
The FTSE 100 slid 36.55, or 0.6 percent, to 5,838.34 at the close in London. The gauge climbed 2.3 percent over the previous two days after U.S. manufacturing data expanded at a faster-than-forecast pace. The FTSE All-Share Index slipped 0.5 percent today, as did Ireland’s ISEQ Index.
“Today’s session can be summed up as a mild bout of profit taking,” said Angus Campbell, head of market analysis at Capital Spreads in London. “Any prospect of a meaningful gain was wiped out when U.S. factory orders disappointed.”
The U.S. Commerce Department report showed factory orders climbed in February by 1.3 percent after a revised 1.1 percent decline in January. That missed the median economist forecast for a 1.5 percent gain in a Bloomberg survey.
In the U.K., the British Chambers of Commerce said the economy will probably avoid a recession this year. Gross domestic product rose 0.3 percent in the first quarter after a 0.3 percent drop in the last three months of 2011, the lobby group forecast today. The BCC estimated full-year growth of 0.6 percent, less than the 0.8 percent forecast by the government’s fiscal watchdog.
The FTSE 100 has rallied 4.8 percent this year, boosted by the European Central Bank’s 1 trillion euros ($1.3 trillion) in loans to the region’s financial institutions. The volume of shares changing hands today was was 12 percent less than the average over the past 30 days, Bloomberg data show.
Banks declined across Europe today as the yield on Spain’s 10-year bonds climbed 10 basis points to 5.43 percent. Spanish unemployment rose and the government said its debt will reach 79.8 percent of gross domestic product this year, up from 68.5 percent last year.
“Fears over Spain were reignited following their unemployment numbers as investors fret over an important euro-zone economy that has just gone back into recession,” said Campbell. They are “fast becoming the most likely candidate to require the next bailout.”
RBS, Britain’s biggest state-owned lender, slid 3.1 percent to 26.89 pence, Lloyds fell 2.7 percent to 33.68 pence and Barclays Plc dropped 2.6 percent to 230.35 pence. Man Group Plc, the world’s largest publicly traded hedge fund manager, slipped 2.4 percent to 130.1 pence.
Elsewhere, Compass Group declined 1.8 percent to 659 pence, falling for the first time in five days. Morgan Stanley downgraded the world’s largest catering company to equal weight, the equivalent of hold, saying valuations look “fair to full.”
Old Mutual Plc also retreated as Credit Suisse Group AG lowered its recommendation for the insurer to neutral from outperform, citing limited restructuring opportunities in 2012. The shares fell 1.8 percent to 159.9 pence.
Redrow Plc led housing-related companies lower, falling 2.3 percent to 126 pence as Oriel Securities Ltd. lowered its recommendation for the homebuilder to hold from buy. The brokerage also downgraded Persimmon Plc and Taylor Wimpey Plc to hold and cut Rightmove Plc to sell.
Taylor Wimpey fell 1.7 percent to 51.2 pence, Persimmon and Rightmove lost 1.5 percent to 635 pence and 0.9 percent to 1,449 pence respectively.
Cairn Energy gained 4 percent to 333.2 pence, rising for the first time in nine days. The energy explorer agreed to buy Agora, a Norwegian company owned by RIT Capital Partners Plc and financier Jacob Rothschild, for an enterprise value of $375 million and net working capital of $75 million. Cairn will pay 43 percent in cash and 57 percent in shares.
Aberdeen Asset Management Plc gained 3.9 percent to 269.1 pence, the highest since 2001 as Morgan Stanley named the company as a “core pick” among European money managers. The analysts cited “better relative growth and scope for higher payouts and raised their price estimate for the shares by 21 percent to 314 pence.
Hays Plc advanced 1.2 percent to 86.3 pence after Bank of America Corp. boosted its recommendation for the recruitment company to buy from neutral.
Quintain Estates & Development Plc climbed 4 percent to 39.5 pence after the company concluded the 158 million-pound ($253 million) refinancing of its IQ Fund, a provider of student accommodation.
Heritage Oil Plc jumped 10 percent to 152.3 pence after the energy company exploring in Iraq’s Kurdistan region reported natural-gas flows at the Miran-3 well.