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FTSE down 0.7 pct awaiting data, inflation report

Published 08/12/2009, 04:10 AM
Updated 08/12/2009, 04:19 AM
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* Banks weak; ongoing cash call concerns

* Miners retreat with commodity prices

* UK unemployment, BoE inflation report awaited

By Jon Hopkins

LONDON, Aug 12 (Reuters) - Britain's top shares fell 0.7 percent early on Tuesday weighed down by weak banks and miners ahead of the release of UK unemployment numbers and the latest Bank of England inflation report.

Investors were also awaiting the outcome of the U.S. rate-setting FOMC meeting later in the day.

By 0749 GMT, the FTSE 100 index was 32.22 points lower at 4,639.12 after closing down 1.1 percent on Tuesday, its biggest fall in a fortnight after hitting 2009 highs on Friday.

"It's just not really going to get its act together until we get the quarterly inflation report, and even then I think it's going to hang on to itself until we see what the FOMC does later on this evening," said Manus Cranny, head of sales at MF Global.

Weak banks were the biggest drag on the blue chips once again as ongoing fears of potential cash calls in the sector continued to have an impact.

Lloyds Banking Group, which was reported as considering a multi-billion pounds share offering at the weekend, failed to allay that fear as it announced it will sell its asset management business, Insight, to The Bank of New York Mellon for a total consideration of 235 million pounds.

Lloyds shares shed 2.4 percent, while Barclays, Royal Bank of Scotland, HSBC and Standard Chartered lost 1.0 to 3.0 percent.

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Miners also dragged on the FTSE 100 as commodity prices fell back amid concerns over the strength of any economic recovery ahead of comments from the BoE and the Fed.

Silver miner Fresnilo was the worst off, down 4.8 percent, while Kazakhmys, Rio Tinto, Antofagasta, Lonmin, Xstrata and BHP Billiton dropped 1.2 to 3.2 percent.

BHP Billiton, the world's largest miner, gave a cautiously optimistic outlook for commodities demand on Wednesday after posting a 51 percent dive in second-half profit, its first profit fall in seven years.

Oil majors managed gains, however, as crude prices stabilised around $69, with BG Group adding 1.2 percent, supported by an ING upgrade to "hold" on valuation grounds, while Royal Dutch Shell gained 0.6 percent.

BP lost 1.0 percent as the stock traded ex-dividend.

Overall ex-dividends factors knocked 8.65 points off the FTSE 100, with BT Group, Pennon, RSA Insurance, Schroders, Standard Chartered and Standard Life also losing their payout attractions.

On the upside, construction and engineering group Balfour Beatty was the top blue chip performer, up 5.5 percent after it said underlying first-half pretax profit rose by 14 percent, boosted by growth at its U.S. operations.

International Power, ahead 2 percent, extended its gains following Tuesday's well-received first-half results, with other utilities also in demand thanks to defensive considerations, notably Centrica and Severn Trent, up 1.4 and 1.2 percent, respectively.

Defensive attractions also boosted tobacco stocks, with British American Tobacco gaining 1 percent and Imperial Tobacco adding 1.6 percent.

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MACRO FOCUS

UK claimant count unemployment is seen rising by 25,000 in June, after a 23,800 increase in the previous month, taking the umeployment rate up to 7.7 percent, from 7.6 percent in May, when the numbers are released at 0830 GMT.

At 0930 GMT, the Bank of England will publish quarterly growth and inflation forecasts, which should shed light on its surprise decision last week to pump more money into the economy.

The BoE could leave the door open to more quantitative easing if its forecasts suggest weak economic growth will leave inflation below target for an extended period.

Later on the focus will switch to the United States and the outcome of the latest rate-setting Federal Reserve Open Market Committee meeting.

The Fed is expected to hold rates near zero when it makes the announcement at 1815 GMT and let a $300 billion programme to buy Treasury securities expire on schedule in September as economic gloom lifts. (Editing by Hans Peters)

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