FTSE falls on euro zone, China, UK politics fears

By David Brett

LONDON (BestGrowthStock) – Britain’s top share index fell on Tuesday as concerns over the euro zone’s $1 trillion rescue package, monetary tightening in China and political uncertainty in the UK hit investor sentiment.

The FTSE 100 (.FTSE: ) index closed down 53.21 points, or 1 percent, at 5,334.21, having gained 5.2 percent on Monday after an emergency rescue package from the European Union initially quelled fears a new credit crisis would derail European economies.

“Now that the euphoria of the rescue package has been digested, traders are quickly coming to the conclusion that the Euro zone faces severe fiscal cuts and an uncertain growth outlook and this is why yesterday’s gains were short lived,” said Joshua Raymond, market strategist at City Index.

Risk-sensitive banks, which potentially have huge exposure to the euro zone debt crisis, were the biggest fallers, with Barclays (BARC.L: ), HSBC (HSBA.L: ), Lloyds Banking Group (LLOY.L: ) and Standard Chartered (STAN.L: ) shedding 1.2 to 3.1 percent.

Royal Bank of Scotland (RBS.L: ) saw the sharpest losses, down 3.4 percent, hit additionally by a Deutsche Bank downgrade.

Relief at the European Union’s bold move to restore investor confidence gave way on Tuesday to doubts about whether weaker euro zone economies can meet their part of the bargain and deliver drastic debt cuts.

Miners fell in tandem with metal prices as inflation in China hit an 18-month high in April, sparking fears of potential monetary tightening measures, which cast a shadow over the outlook for demand.

Xstrata (XTA.L: ), Vedanta Resources (VED.L: ) and Kazakhmys (KAZ.L: ) were the worst off, dropping 3.9 to 4.2 percent.

Randgold Resources (RRS.L: ) bucked the weak sector trend and topped the FTSE 100 leader board, up 5.2 percent, as investors retreated to the safe haven of the dollar and gold.

Demand concerns also impacted energy companies, with BG Group (BG.L: ), BP (BP.L: ) and Royal Dutch Shell (RDSa.L: ) down 0.3 to 1.5 percent.

TUI Travel (TT.L: ) shed 3.8 percent after Europe’s biggest travel firm said disruption caused by the volcanic ash cloud had so far hit profits by around 90 million pounds as it reported widening first-half losses.

ELECTION LIMBO

Britain’s Liberal Democrats said talks to form a new government had entered a decisive phase on Tuesday, after Prime Minister Gordon Brown’s shock announcement he would quit to tempt them into alliance with his Labour Party.

The Bank of England looks set on Wednesday to signal rates will stay put for the time being, making few tweaks to its quarterly forecasts, as policymakers wait for clarity on Britain’s government and Europe’s debt crisis.

UK housebuilders fell as uncertainty over the election, future macroeconomic policy and potential changes to the planning system knocked confidence in the sector.

Mid-caps Redrow (RDW.L: ), Berkeley Group (BKGH.L: ), Taylor Wimpey (TW.L: ) and Bovis (BVS.L: ) fell 2.7-4 percent.

Still with the mid-caps, Enterprise Inns (ETI.L: ) jumped 14 percent, as the pubs group agreed a new 625 million pound debt facility.

Back amongst the blue chips, power firm National Grid (NG.L: ) rose 0.7 percent on the back of a UBS upgrade to “buy” from “neutral” ahead of its full-year results on May 20.

British business services group Serco (SRP.L: ) rose 0.3 percent after an upbeat trading update.

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(Editing by David Cowell)

FTSE falls on euro zone, China, UK politics fears