U.K. Stocks Drop as U.S. Business Activity Falls Short

U.K. stocks declined, paring their biggest weekly gain since April, as miners retreated and a report showed business activity in the U.S. declined more than forecast in June.

Eurasian Natural Resources Corp. fell 3.7 percent, as a gauge of London-listed commodity producers dropped. BAE Systems Plc retreated 2.1 percent after Deutsche Bank AG downgraded Europe’s biggest defense company. Serco Group Plc advanced 2.7 percent after saying first-half sales will grow at a faster pace than it had estimated.

The FTSE 100 Index fell 27.93 points, or 0.5 percent, to 6,215.47 at the close of trading in London. The equity benchmark lost 5.6 percent this month, for a 3.1 percent quarterly decline, as the Federal Reserve signaled it may end bond buying next year if the U.S. economy improves in line with forecasts. The FTSE All-Share Index dropped 0.4 percent today, while Ireland’s ISEQ Index advanced 0.1 percent.

“You normally have significant turbulence at the initiation of the tightening cycle,” Bernard McAlinden, Dublin-based co-ordinator of investment strategy for European Securities Network LLP, said by phone. “But once investors realize that not only are we normalizing rates but we are also normalizing growth, then equities resume gains. We are not near the end of the economy cycle, therefore we are not at the end of the bull cycle in equities.”

The FTSE 100 rose 1.6 percent this week, halting five weeks of declines. The volume of shares changing hands in companies listed on index was 19 percent higher than the average of the past 30 days, according to data compiled by Bloomberg.

Business Activity

Business activity in the U.S. cooled more than projected in June, a regional report showed, as fiscal constraints and stagnant export markets buffeted manufacturers.

The MNI Chicago Report’s business barometer dropped to 51.6 this month from 58.7 in May, which was the highest in more than a year. A reading of 50 is the dividing line between expansion and contraction. The median forecast of 55 economists surveyed by Bloomberg was 55.

A separate report showed the Thomson Reuters/University of Michigan final index of U.S. consumer sentiment decreased to 84.1 in June from 84.5 the prior month. The median forecast in a Bloomberg survey called for 83 in the gauge after a preliminary reading of 82.7.

Fed Bank of Atlanta President Dennis Lockhart said late yesterday that investors may have overreacted to Chairman Ben S. Bernanke’s announcement that the central bank could start scaling back record stimulus this year.

2015 Increase

The Fed has kept its benchmark policy rate near zero since December 2008. In his speech, Lockhart predicted that the first increase in the federal funds rate, which will be dependent on how the economy evolves, may occur in 2015.

In Japan, industrial production rose 2 percent in May from a month earlier, the statistics bureau in Tokyo said. That’s the biggest gain since 2011 and exceeded the 0.2 percent increase estimated by economists in a Bloomberg survey.

In the U.K., a gauge of consumer sentiment by GfK NOP Ltd. gained one point to minus 21 in June, the best reading since May 2011. An index of the economic outlook for the coming year climbed 2 points to minus 16.

Kazakh miners ENRC and Kazakhmys Plc slid 3.7 percent to 204 pence, and 2.4 percent to 258.7 pence, respectively, as the FTSE 350 Mining Index fell for the third time this week. African Barrick Gold Plc tumbled 7.7 percent to 96 pence, a record low.

BAE Downgraded

BAE lost 2.1 percent to 383 pence. Deutsche Bank cut its rating on the shares to hold from buy, citing limited potential for further gains. BAE has rallied 16 percent so far this year.

“We expect BAE to deliver a weak trading performance” in the first half, Benjamin Fidler and Milene Kerner, analysts at Deutsche Bank, wrote in a report.

Serco climbed 2.7 percent to 616.5 pence, for the biggest gain on the FTSE 100. Full-year results will be in line with estimates, according to the U.K. services company, whose operations include prisons and London’s Docklands Light Railway.

Schroders Plc rose 1.3 percent to 2,183 pence after BNP raised its recommendation on Europe’s biggest independent money manager to outperform, similar to buy, from neutral. Exane cited Schroders’ broad product range and “strong ability to gain from any rotation into equities” as reasons for the upgrade.