MW: Britain's top share index drops as miners fall
FTSE 100 index down 1.3%: Drugmaker Shire upgraded at J.P. Morgan
By Sarah Turner, MarketWatch
LONDON (MarketWatch) -- Miners retreated on Wednesday following speculation that policy tightening from China will decrease demand for metals, with the move weighing on the top British share index.
Copper miners were hard-hit, as shares of Eurasian Natural Resources (UK:ENRC 966.00, -61.00, -5.94%) fell 5.7%, Antofagasta (UK:ANTO 973.50, -65.00, -6.26%) shares declined 6% and Xstrata (UK:XTA 1,145, -74.00, -6.08%) shares declined 6.2%.
High-grade-copper futures fell 8 cents to $2.18 a pound, while gold futures dropped $24.20 to $1,115.80 an ounce. The dollar rose against the euro and sterling, with the pound down 0.3% at $1.6304.
"Concerns about imminent policy tightening from Beijing appear to have contributed to the dollar rally," noted strategists at RBC Capital Markets. Read China economy preview.
China has already raised its reserve-requirement rate and reportedly told several commercial banks to stop lending during January on Wednesday. China's top banking regulator, Liu Mingkang, denied the report, but said Chinese banks were expected issue fewer new loans in 2010 than they did in 2009. Read more on China lending.
"This should be welcomed in principle," said Mike Lenhoff, strategist at Brewin Dolphin. "Markets have been prepared to accept that they're not out to kill the economy but are out to control growth. The surprise is that it's come sooner rather than later."
He said it's no coincidence that miners were weak on Wednesday. "They are the one sector that is exclusively geared to the region. The thrust of Chinese policy has been geared to developing domestic demand. That that has benefitted the resource sector."
The U.K. faced its own interest-rate-rise speculation on Tuesday after inflation spiked in December. However, Bank of England policy makers on Wednesday expressed confidence that inflation would remain under control over the long term. Read more on the BoE.
Overall, the U.K. FTSE 100 index (UK:UKX 5,437, -75.80, -1.38%) dropped 1.3% to 5,440.31. Other European shares were also lower, and U.S. stocks started with losses.
Stocks jumped on Tuesday on both sides of the Atlantic, led by gains for drugmakers ahead of the U.S. Senate election in Massachusetts. Republican Scott Brown, who won Tuesday night, has promised to help block the Obama Administration's health-care-reform efforts. See related story.
"Pharma stocks outperformed the markets by 130% over five years, the last time U.S. health-care reforms failed. If reforms fail now, pharma stocks should benefit as an overhang is lifted," said analysts at UBS. Drugmakers gaining again on Wednesday included GlaxoSmithKline (UK:GSK 1,291, +5.50, +0.43%) (GSK 42.06, -0.06, -0.14%) , up 0.3%.
Shire (UK:SHP 1,263, +34.00, +2.77%) shares climbed 2.9% after the firm was lifted to overweight from neutral by J.P. Morgan on the pharmaceutical's Intuniv non-stimulant ADHD therapy. The broker now expects its market share to reach 5%, from an earlier view of 3%.
Meanwhile, telecommunications company Cable & Wireless (UK:CW. 148.80, +2.80, +1.92%) gained 1.9% after it was upgraded to buy from hold at Citigroup, which said that the structural and macroeconomic recovery in 2010 should raise confidence and drive a re-rating of the stock.
Other gainers included bookmaker William Hill (UK:WMH 193.50, +8.40, +4.53%) , which jumped 4.4% outside the top index. It said fourth-quarter revenue rose 6% and it now expects its fiscal-year net revenue to increase by around 4% from the previous year. Earnings before interest and tax are seen at around 250 million pounds in the year.
A 3.9% drop in comparable sales at its Comet chain in the U.K. meant that overall comparable sales fell 0.3% in the period from Nov. 1 to Jan. 8, the firm said, adding that profit margins were flat. Total sales rose 1.3%.
"The stock remains highly rated, on 20.1 times fiscal-year 2010 estimated earnings," though the dividend yield is 3.4%, noted analysts at Seymour Pierce.
