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FTSE falls to 4-week closing low

LONDON: Britain's FTSE 100 suffered a dramatic two-way pull on Tuesday, with strength in leading bank and drug stocks eventually overwhelmed by sharp falls in unwanted telecom, media and technology (TMT) sectors.

Reversing Monday's gains, the blue chip UK index ended 39.5 points or 0.6 percent lower at 6,422.6 -- its lowest close in four weeks -- having reversed an early gain of some 69 points.

Gainers were in a near five to four majority, but falls in heavyweight telecom stocks such as Vodafone Cable & Wireless and British Telecom offset strength in the likes of drug stock AstraZeneca and banking group Lloyds TSB .

"What we are having is a realignment in the valuation between the TMTs and the rest of the market, and as is the way these days it's happening very rapidly," said Vanessa James, head of UK equities at Legal & General Investment Management.

"But there might be some bargains appearing in the TMT sectors, just as we recently saw some bargains in the traditional sectors of the market," James said.

The UK market's performance mirrored trends on Wall Street, where demand for "old economy" stocks propelled the Dow Jones average up 137 points or 1.2 percent by London's 1530 GMT close, even as the tech-laden Nasdaq Composite extended Monday's 7.6 percent slump to be down 152 points or 3.6 percent.

Britain's techMARK 100 index of technology stocks suffered a drop of 350.07 points or 8.6 percent to 3,733.24 -- its lowest close in three months. The FTSE 250 index of mid-cap stocks, also heavily loaded in Mechnology and biotech stocks, lost 106.6 points or 1.7 percent to 6,260.5, a two month closing low.

Seven mid cap stocks lost a fifth or more of their market value -- all of them technology or tech-related stocks, ranging from Internet directory company Scoot.com through Internet investor Durlacher to satellite TV receiver maker Pace Micro .

There was a similar pattern in blue chips, with the FTSE 100 loser board dominated by hefty losses in former high-flying TMT issues.

Handheld computer maker Psion -- which scaled lofty heights in recent weeks amid hopes for the use of its technology in mobile phones -- took the biggest pasting, dropping 18 percent, but 11 other stocks suffered losses of 10 percent or more.

Internet security specialist Baltimor slid 16 percent and there were heavy losses in stocks ranging from business software group Misys to chip designer ARM Holdings .

Yet on the upside there were strong gains in previously out of favour stocks such as retailers Boots -- squeezed up 13.7 percent after it achieved a chart breakout -- and mortgage lender Abbey National up 10.4 percent.

UK tech-related stocks took their lead from the outset from Monday's record points fall in the U.S. Nasdaq index, which slumped 7.6 percent after talks between U.S. antitrust regulators and software giant Microsoft broke down.

Dealers said sentiment towards technology stocks in Europe had also been rattled by Monday's low-end flotation price for Deutsche Telekom's Internet service provider T-Online, ranked Europe's largest.

Yet they said there was widespread frustration about the latest bout of unpredictable market volatility, with investment demand swinging between old and new economy segments.

"There's nothing sophisticated about the market today. It's simply a case of old is good, new and techy is bad," one equity salesman said. "Old -- buy it, new -- sell it."

Some said the sharp losses in former market stars in the TMT sectors looked to be throwing up some good buying opportunities in stocks which had slumped 50 percent or more from their previously inflated peaks.

But they said investment funds were likely to shy away because of the extreme volatility being shown. "These moves are happening so quickly it's impossible for the big funds to do anything about it," said one.

Among individual stocks, Thomson Travel jumped 36 percent after Germany's C&N Touristic said it was making a bid at 130 pence per share, which Thomson said it would reject.

Among small caps, IT recruitment agency MSB tumbled 40 percent after a warning from the company that results in the the new financial year would be hit by continuing soft demand.

Chartwise, the FTSE 100 continues to face key support at around 6,350 where the 200-day and 50-day moving averages have converged. The index has not been below that level since early March.-Reuters