Reuters: Hot Stocks: FTSE hits 3-week low on monetary tightening concerns

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FTSE hits 3-week low on monetary tightening concerns Aug 7th 2013, 15:26 Wed Aug 7, 2013 11:26am EDT * FTSE 100 index falls 1.1 percent * Market reacts negatively to BoE comments * TUI Travel drops 5.2 percent on profit-taking By Atul Prakash LONDON, Aug 7 (Reuters) - Britain's top share index fell to a three-week low on Wednesday on concerns the Bank of England and the U.S. Federal Reserve may start tightening their monetary policies earlier than expected. A day after two Fed officials suggested the U.S. central bank may cut the pace of bond purchases as early as next month, the BoE said it planned to keep interest rates at a record low until unemployment fell to 7 percent from 7.8 percent now, which it views as unlikely for another three years. But investors reacted cautiously to the guidance after the central bank also said rates could be tightened if levels posed a threat to financial stability, if medium-term inflation expectations rose dangerously or if it forecast inflation in 18-24 months at 2.5 percent or higher. "The equity markets have reacted negatively due to questions over the credibility of the forward guidance knock-outs," James Butterfill, global equity strategist at Coutts, said. "Both the inflation knock-outs remain ambiguous." Unemployment is expected to fall slowly, with the central bank expecting it to average 7.1 percent in the third quarter of 2016, the end of its forecast horizon. "The nightmare scenario for us all is that policy has to be tightened because one or other of the 'knock-outs' has been triggered before unemployment has fallen meaningfully," said Nick Beecroft, Chairman at Saxo Capital Markets. The market was choppy throughout the day, with the FTSE 100 turning positive after the BoE report before falling later to a three-week low as investors found negative elements in the BoE's statements. The FTSE 100 fell 1.1 percent to 6,532.36 points by 1439 GMT after touching 6,524.59, the lowest since mid-July, led by a sharp drop in TUI Travel, the world's top tour operator. TUI fell 5.2 percent after spiking up by a fifth in the last three months, with investors taking profits after it said earnings were expected to grow by at least 10 percent this financial year, boosted by the popularity of fixed-price holidays among budget conscious Europeans. Among sectoral decliners, miners were hit hard. The UK mining index fell 1.3 percent to feature among the top decliners on the back of poor earnings and concerns about global demand for industrial metals like copper. Randgold Resources fell 1.7 percent after the Africa-focused miner posted a 62 percent drop in quarterly profit, while Rio Tinto fell 1.6 percent on weaker metals prices and concerns about demand for raw materials in top consumer China. Glencore Xstrata slid 1.8 percent after the miner and JPMorgan Chase & Co were hit with a U.S. lawsuit, along with the London Metal Exchange, alleging they artificially inflated aluminium prices. (Additional reporting by Sudip Kar-Gupta; Editing by David Cowell) Link this Share this Digg this Email Reprints

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