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FTSE-100 ends down as output data hits rate nerves

LONDON: The UK's FTSE 100 index closed down sharply for the third straight session on Thursday after unexpectedly strong UK output price data heightened nervousness over the interest rate outlook.

Dealers said derivatives-led activity allied to some heavy program or portfolio trading had also depressed UK stocks.

With banks in particular suffering from the fresh rate worries, the UK benchmark index dropped 96.7 points or 1.5 percent to close at 6,348.7. Decliners outnumbered gainers by 74 to 23.

The fall meant the FTSE 100 had slid around 320 points or 4.8 percent in the last three days, and was down some 8.4 percent from its record closing high of 6,930.2 set on December 30.

A number of market heavyweights were among the casualties. They included BP Amoco, BT and Glaxo Wellcome all of which dropped as much as 2.3 percent.

In the bank sector, Abbey National, HSBC Holdings, Standard Chartered and Barclays all slipped over 3.3 percent.

The fresh bout of concerns over UK rates was sparked by official figures showing a 0.3 percent increase in the cost of goods leaving UK factories in December -- the highest level in over three years.

The data increased expectations the Bank of England will raise its base lending rate by 25 basis points for the second straight month in February.

But analysts said the ongoing uncertainty over U.S. interest rates was the main worry for the UK equity market. They said most investors had already priced in a 25 basis-points hike by the Federal Reserve next month but there were growing concerns it could be as much as 50 basis points.

"While this sentiment persists you will see the (UK) market at these type of levels or it will track sideways," said Merrill Lynch UK equity strategist Khuram Chaudhry.

"The consensus is the Fed will put rates up, but by how much has yet to be factored in."

Meanwhile in New York, the Dow Jones average pared an early 69-point rise and was down around 16 points by the London close.

UK market turnover by that time had reached 1,811 million shares, maintaining its recent run of heavy volumes.

Industrial-based and consumer cyclical stocks all struggled amid the concerns over global rates.

Steel maker Corus, building materials company Wolseley WLY.L and drinks group Diageo were among the 10 worst FTSE 100 performers.

Yet consumer products Reckitt Benckiser was one of the best gainers, climbing 5.9 percent after Lehman Brothers included the stock in its "uncommon value" recommended list.

Banking group NatWest also bucked the trend with a 4.3 percent gain.

Elsewhere, Collins Stewart technical analyst Chris Chaitow said the FTSE was testing a support level at 6,430, the index's low from January 6, and said that if it closed below that for three straight days it would be safe to assume the support was broken.

Thursday was the first close below 6,430 since early November.

"Essentially, support is being eroded, there's downside risk of around 200 points and the FTSE needs to rally pretty quickly to get away from that," Chaitow said, adding that the overall pattern of the FTSE was trending down to 6,200.

The FTSE 250 index of medium-sized stocks was slightly more resilient than the FTSE 100, ending down 37.6 points or 0.6 percent at 6,457.9.

The junior index was aided by a 33 percent surge by chemicals company BTP following news Switzerland's Clariant AG was set to make a cash bid for the UK group.-Reuters