U.K. Stocks Fall On Budget Talks, Israel Clash; BP Drops

U.K. stocks declined to their lowest in more than three months as U.S. President Barack Obama and Republicans discussed how to resolve the country’s so-called fiscal cliff and conflict escalated in Israel.

BP Plc and Royal Dutch Shell Plc each fell more than 2 percent. Melrose Plc slumped the most in 15 months after saying it saw slower trends for some businesses in the past weeks. Pennon Group Plc, a U.K. waste and water company, retreated 4.6 percent as Barclays Plc downgraded the shares. IMI Plc rose 1.7 percent.

The FTSE 100 retreated 72.16 points, or 1.3 percent, to 5,605.59, its lowest since July 26, at the close of trading in London. The measure fell 2.8 percent this week. The FTSE All-Share Index lost 1.2 percent today, while Ireland’s ISEQ Index declined 0.2 percent.

“President Obama is leaving for an Asian tour tomorrow and Congress will be breaking up for an extended Thanksgiving holiday,” Alastair McCaig, market analyst at IG in London, wrote in an e-mail. “As both parties are not due to return until Nov. 26, this will do nothing to calm fears that they will once again stretch out negotiations over how to tackle the fiscal cliff until the very end. Debt rating agencies have clearly stated they will not tolerate the stalling tactics seen in 2011, and a downgrade of U.S. debt seems likely unless progress is made soon.”

The benchmark FTSE 100 has fallen 4.8 percent since Obama’s re-election on Nov. 6 amid concern that impending tax increases and spending cuts will push the U.S. economy into recession. Stocks extended losses as Hamas said it fired at Israel’s parliament, while Israel extended its bombing of Gaza.

Obama Talks

Obama is holding his first face-to-face talks with House Speaker John Boehner since the presidential election. He also hosts House Minority Leader Nancy Pelosi, a California Democrat, Senate Majority Leader Harry Reid, a Nevada Democrat, and Senate Minority Leader Mitch McConnell, a Kentucky Republican.

Obama’s insistence on higher taxes for top earners and Republicans’ refusal to raise rates leaves negotiators with arithmetically complex and politically fraught choices. Today’s meeting features the same people who failed to reach agreement in 2011.

Industrial production in the U.S. unexpectedly declined in October as superstorm Sandy knocked out power in the Northeast.

Output at manufacturers, mines and utilities dropped 0.4 percent last month after a revised 0.2 percent increase in September that was smaller than previously estimated, Federal Reserve data showed today. Economists had forecast a 0.2 percent gain, according to the Bloomberg survey median.

U.K. Economy

Britain’s economy may shrink this quarter and the risk has increased that the country will succumb to its first triple-dip recession since records began almost six decades ago, according to a survey of economists.

Gross domestic product will fall 0.1 percent in the three months through December, the median forecast in a Bloomberg News survey showed. That’s down from 0.1 percent growth forecast last month. While economists see 0.2 percent expansion in the first quarter of 2013, the odds of the economy slipping back into a recession within the next year increased to 33 percent from 28 percent.

Equities extended losses as Hamas said it fired at Israel’s parliament, while Israel extended its bombing of Gaza.

BP and Shell, Europe’s largest oil companies, slumped 2.1 percent to 416.6 pence and 2.2 percent to 2,029.5 pence, respectively.

Oil prices rose on concern that the clash between Israel and Hamas will escalate into a wider conflict that could endanger Middle East crude shipments.

Melrose Plc slumped 11 percent to 208.9 pence, its biggest decline in 15 months, after saying it saw slower trends for some businesses in the past weeks. The investment company also said its sales outlook for 2013 is now uncertain as revenue trends have slowed.

Pennon, Castings

Pennon retreated 4.6 percent to 599.5 pence. Barclays downgraded its recommendation on the stock to equalweight, the equivalent of hold, from overweight. Shares fell 6.2 percent yesterday after the company said that profit was crimped in the fiscal first half after earnings at its Viridor unit slumped by about 30.5 percent as prices tumbled for the recycled material it produces.

Castings Plc sank 15 percent to 296 pence, its biggest drop since January 2004, after reporting first-half sales of 60.4 million pounds ($95.9 million), down from 64 million pounds a year earlier. The company also said it will be affected by a downturn in its truck business.

IMI gained 1.7 percent to 958 pence for the best performance on the FTSE 100. The engineering company said trading in the second half was in line with management expectations.

Serco Group Plc jumped 1 percent to 550 pence after the company said it had an improved performance in the second half of 2012 as challenging U.S. conditions were offset by overall portfolio strength.

Capital & Regional Plc rallied 6.1 percent to 26 pence after the company said it’s in talks to sell its 50 percent stake in X-Leisure Ltd.

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