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FTSE-100 drops as Vodafone absorbs investors' cash

LONDON: Britain's FTSE 100 fell for a second straight session on Friday, depressed by a wave of selling in a range of large, liquid stocks as institutional investors raised cash to buy mega stock Vodafone.

Dragged lower by a heavy decline in banking group Lloyds TSB, the blue chip index closed down 86.5 points or 1.4 percent at 6,193.3, not far from a 14-week closing low set at the start of the week.

Decliners were in a three to two majority in the leading index, with a near nine percent fall in Lloyds accounting for some 16 points of the FTSE 100's fall.

Overall the banking sector was the biggest negative influence, delivering 38.5 points of downside. Bank of Scotland was among the biggest FTSE 100 casualties, down 9.9 percent as the bank denied being a bid target despite losing the battle for control of NatWest.

Lloyds tumbled despite a 20 percent increase in pre-tax profits, amid concern over implications of the group's late entry into online banking and a lack of hoped-for bid news.

Yet dealers said the key market influence was fund managers unloading stocks to raise cash to increase their holdings of Vodafone - a trend that exaggerated weakness in Lloyds and hit other heavyweights such as BP Amoco, down 1.5 percent. r equity salesman said. "This stock is going to be between 10 and 15 percent of the index and everyone has got to get their weightings right."

Vodafone rose 2-1/2 pence in extremely heavy volume of 1.8 billion shares - over half total market volume which reached 3.4 billion shares by the 1630 GMT close.

A weak opening on Wall Street also helped drag the UK market lower, with the Dow losing 40 points by the London close -- having on Thursday dropped to its lowest levels in three months.

Interest rate worries remained near the top of the list of the market's concerns, as U.S. retail sales figures showed consumer spending strong at the end of last year.

Prospects for continued rate hikes have helped weigh on markets on both sides of the Atlantic since the start of the year.

Yet overall the focus remained on Vodafone, ahead of a critical decision by index manager FTSE International on the weighting of the new stock - expected after the London market close.

Vodafone exemplified the growth in telecom and technology stocks that has dominated market activity in recent weeks, producing an extreme divergence in the ratings accorded to different sectors.

Dealers said many investors were still struggling to make up underweight positions in much of the new economy, with Vodafone only the biggest example. "It's a crazy world and it will all end in tears at some point, but the trouble is no-one knows when," the equity salesman said.

RECORD PEAK

Among tech stocks rising sharply on Friday, Internet security specialist Baltimore Technologies jumped to record peaks some 10 times its level less than four months ago, on hopes it will soon join the FTSE 100 and talk of a possible software deal with an international banking consortium.

The stock closed 16.00 pounds at 108.00 pounds.

The move in Baltimore helped push the FTSE 250 index up 103.6 points or 1.7 percent to 6,147.4, as mid cap stocks defied the weakness in blue chips.

Other second line tech stocks in favour included handheld computer maker Psion and online auctioneer QXL.com, though the biggest gainer was paper and packaging firm Arjo Wiggins, up 21.8 percent having bounced off lows struck on

Thursday.Among other leading individual stocks, retailer Kingfisher was the top FTSE 100 gainer, up 9.4 percent as the stock lured bargain hunters after falling to 25-month lows earlier in the week. Some said Kingfisher could look like a bid target at its depressed levels.

Other top gainers included media to hotels group Granada, up 8.5 percent as buyers moved in again after Deutsche Bank on Thursday added the stock to its European recommended list.

Cable & Wireless also provided some cheer, rising 3.2 percent on news Pacific Century CyberWorks 1186.HK had signalled it may launch a competing bid for C&W HKT 0001.HK. The Hong Kong group, in which C&W owns a 54 percent stake, is already in merger talks with Singapore Telecom.

Other indices also rose, with the FTSE Small Cap index rising 23.3 points or 0.7 percent to 3,160.3 while the FTSE techMARK 100 index gained 11.63 points or 0.2 percent to 4,847.12.

From a technical point of view, analysts noted that the FTSE 100 had failed to break back above its 200-day moving average, currently at 6,355, though it remained well above the psychological 6,000 support level.

"Although we have a good chance of staying above 6,000, once we go down through it we are in a bear market," said Robin Griffiths, chart analyst at HSBC Securities. "But a lot of the weakness recently has been reweighting around Vodafone and that's probably over now."-Reuters