Weak miners pressure FTSE, Tesco drops before update

Reuters

By Tricia Wright

LONDON (Reuters) - Weak miners dented the FTSE 100 on Monday, tracking copper prices lower as traders bet on more falls for the broader market, while Tesco dropped on analyst downgrades ahead of an update later in the week.

Miners shed 1.7 percent, knocked by a weaker copper price as concerns over swelling supplies overshadowed improved manufacturing data from top metals consumer China.

They accounted for nearly a quarter of the FTSE 100's falls, with the index off 43.35 points, or 0.7 percent, at 6,607.22 points by 16:01 p.m, albeit in light volume at just over half of the 90-day day average, exaggerating market moves.

Analysts said that while the index's long-term upward trend remains intact, the more immediate outlook is looking increasingly bearish. It has been trending lower since the end of October, shaving its advance in 2013 to around 12 percent.

"It wouldn't be a surprise for us to see a further pull-back, at least in the short term given the strong performance that we've seen year to date," said Henk Potts, market strategist at Barclays.

"But the longer-term fundamentals (economic recovery coupled with corporate profitability growth) still would suggest that equity markets will outperform other asset classes during the course of next year."

Fawad Razaqzada, technical analyst at Gain Capital, reckons the index could fall as far as 6,506, its 200-day moving average, but will be contained around that level.

Charles Stanley analyst Bill McNamara holds a similar view, seeing a break below 6,600, a whisker away from current levels, as the catalyst for a move to the 6,500 area.

Signs of weakness in the euro zone economy took their toll on investor sentiment. Spain's manufacturing sector contracted for the first time since July, underscoring the fragility of the recovery in the euro zone, Britain's top trading partner.

While the British economy is improving - with job growth pushing UK manufacturing to a near three-year high in November, data showed on Monday - consumer demand remains fragile, forcing retailers into stiff price competition.

Tesco fell 2.1 percent to 340.60 pence after HSBC downgraded it to "underweight" saying the company needs to lower margins, while Goldman Sachs lowered its third quarter earnings estimates for the firm.

The world's third-biggest retailer is expected to slip back to an underlying sales decline in Britain when it publishes quarterly trading on Wednesday.

On the second tier, department store retailer Debenhams shed 3.9 percent as Barclays cut it to "underweight" blaming margin dilutive online sales, while bicycles-to-car-parts group Halfords was weighed by a JPMorgan downgrade to "neutral", with the investment bank citing valuation grounds. It shed 4.2 percent.

(Additional reporting by Toni Vorobyova)

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