FTSE flat, economy fears offset formation of UK govt

* Banks, commods fall; economy concerns weigh

* Standard Chartered drops on Nedbank bid talk

* Outsourcing, defence up on new UK government

By David Brett

LONDON, May 12 (BestGrowthStock) – Britain’s top share index was
flat by midday on Wednesday, with banks and commodities dented
by economic concerns, offsetting gains in outsourcing and
defence stocks buoyed by the formation of a new UK coalition
government.

At 1111 GMT, the FTSE 100 (.FTSE: ) index was up 3.20 points
at 5,337.41, having fallen one percent on Tuesday.

Banks, which initially rose, pared gains to extend the
previous session’s losses as relief over the UK’s first
coalition government in 70 years gave way to concerns over the
steps needed to be taken to tackle Britain’s huge deficit
without derailing the recovery, and the euro zone debt problems.
[ID:nLDE6492UW]

Barclays, which traded ex-dividend on Wednesday, shed 1.8
percent, while Lloyds Banking Group (LLOY.L: ), Royal Bank of
Scotland (RBS.L: ) and HSBC (HSBA.L: ) dropped 0.2-4 percent.

“There relief a stable government is in place to lead the
country, but it can’t hide the fact there are huge economic
issues for them to address, and that is what is dragging some
stocks lower,” said Jimmy Yates, head of equities at CMC
Markets.

There was some relief when Bank of England forecasts showed
British inflation will fall below its 2 percent target even if
interest rates stay at their current record low and the new
government does not put in place extra fiscal tightening.
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But Spain became the latest euro zone country to announce
sweeping austerity measures as the executive European Commission
sought unprecedented power to pre-vet national budgets.
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Standard Chartered (STAN.L: ) lost 1.5 percent after a source
said the emerging markets focused bank has made an approach
about buying a majority stake in South African bank Nedbank
(NEDJ.J: ), in which Old Mutual (OML.L: ) holds a big stake.
[ID:nLDE64B0TN]

Old Mutual shares rose 2.8 percent, despite trading
ex-dividend, with the financials group also due to issue a
trading update on Thursday.

Fellow insurer Legal & General (LGEN.L: ) benefitted from a
revival of takeover interest, adding 2.3 percent.

COMMODITIES WANE

Commodity shares extended Tuesday’s losses as demand fears
created by the prospect of moves to cool the heating up of
China’s economy (Read more about the fastest growing economy.) weighed on the sectors.

Oil majors were a big drag on blue chip sentiment,
reflecting a lower crude price (CLc1: ), with Royal Dutch Shell
(RDSa.L: ), and BP (P.L: ) losing 0.6 and 0.1 percent respectively.

Oil explorer Tullow Oil, however, added 3.7 percent after it
said it expected formal approval from the Ugandan government in
the next few weeks for its acquisition there, and that oil
production from Ghana was also on schedule. [ID:nLDE64A0KQ]

Miners Anglo American (AAL.L: ), BHP Billiton (BLT.L: ) and
Kazakhmys (KAZ.L: ) shed 0.5-1.1 percent.

On the upside, aerospace and defence stocks were higher with
traders citing a relief rally on hopes the coalition government
will provide more certainty over contracts.

BAE Systems (BAES.L: ), Cobham (COB.L: ) and Rolls Royce (RR.L: )
gained 1.0-3.8 percent.

Outsourcing firm Capita Group (CPI.L: ) and peer Serco Group
(SRP.L: ) up 3.2 and 1.9 percent, also benefited from the greater
perceived stability provided by the coalition government.

Compass Group (CPG.L: ), the world’s biggest caterer, gained
3.6 percent after the firm posted solid first-half results.

Travel firm TUI Travel (TT.L: ) rose 4.7 percent and peer
Thomas Cook (TCG.L: ), which reports first-half results on
Thursday, added 5 percent as airports began to re-open after the
Icelandic volcanic ash cloud lifted.

Unilever (ULVR.L: ), Fresnillo (FRES.L: ), Sage Group (SGE.L: ),
and Whitbread (WTB.L: ) fell after losing payout attractions on
Wednesday.

Investment
(Editing by Louise Heavens)

FTSE flat, economy fears offset formation of UK govt