FTSE falls as US slowdown fears return

The FTSE 100 fell again on Thursday as more big write downs in the US banking sector blocked momentum from retailers after better high street newsflow.

Having rallied earlier in the day, the FTSE was knocked just after mid-day by yet more bad news from the US banking sector.

Merrill Lynch said writedowns for sub-prime, CDO and related activities totalled $11.5bn in the fourth quarter, resulting in a net loss for the quarter of $8.6bn, much worse than consensus forecasts. The news re-stoked fears of a wider slowdown over the Atlantic and was strong enough to spook UK investors.

Just after mid-day, the FTSE 100 was back under the flatline, losing 0.3 per cent to 5,926.9, a loss of 16 points.

Mining stocks dominated the downside on fears for the global growth which drives demand for the metals produced by the sector. Vedanta lost 5.7 per cent to £17.17, Anglo American was 4.9 per cent lower at £25.79 and Kazakhmys fell 4.9 per cent to £11.35,

Home Retail Group offered further insight into the mixed Christmas on the high street as it reported a 0.2 per cent fall in like-for-like sales at its Argos shopping chain. The picture was worse at its Homebase home improvement stores, where like-for-like sales fell 6.3 per cent. But Home Retail said it expected annual profits to reach the top end of forecasts, helping its shares rise 0.5 per cent to 272¼p.

"Despite the nervousness about companies trading in "big-ticket" spending areas, Argos like-for-like sales and gross margins in Q3 are no worse than about flat, which is what the market hoped for, but is almost a miracle in the current climate," said Nick Bubb, analyst at Pali International.

There was a better showing at Primark, the fashion outlet owned by Associated British Foods. Although the company failed to give like-for-like sales data, it said total sales, which includes new retail space, rose 26 per cent, beating forecasts.

ABF said group revenue in the 16 weeks to January 16 rose 13 per cent, helping its shares 6.7 per cent higher to 827p, one of the biggest risers on the FTSE 100.

Music, books and DVD retailer HMV also made progress, rising 8.9 per cent to 109¾p, after a 14.1 per cent rise in festive like-for-like sales at its core UK and Ireland business. It predicted annual profits would reach the top end of forecasts.

Kesa Electricals moved 8.6 per cent higher to 199¼p as the owner of the Comet chain reported a 14.3 per cent increase in sales over Christmas.

Back in London, Morgan Stanley helped foster further gains for the property sector as it predicted a "short, sharp counter-trend rally" in the sector.

"We expect UK property shares to rally by at least 20 per cent in first half 2008 as the Bank of England is forced to cut UK base rates by around 100 basis points in an attempt to avert a recession," wrote analyst Martin Allen.

He upped his rating on British Land to "overweight" from "underweight", helping the stock rise 6.7 per cent to 982p. He also upgraded his stance on Brixton, up 7.9 per cent to 329.8p, and Hammerson, 4.5 per cent stronger at £10.68

Brewer SABMiller fell 1 per cent to £12.33 after it reported growth in lager volumes of 4 per cent, at the bottom of forecast ranges.