LONDON (Alliance News) - UK stock indices have closed lower for the second consecutive day Tuesday, with Sports Direct International the biggest faller on the FTSE 100 after deputy Chairman Mike Ashley sold a 4% stake in the business he founded.
Equity markets in London and elsewhere in Europe fell heavily initially, after the Nasdaq posted a second day of heavy losses overnight and investors continued to monitor another day of tension in eastern Ukraine. However, the losses were pared in the last hour of trade as the US market rallied Tuesday.
The FTSE 100 ended down 0.5% at 6,590.69, the FTSE 250 down 1.5% at 16,014.46, and the All-Share down 1.0% at 841.34. In Paris and Frankfurt, the CAC 40 and the DAX both closed down about 0.2%.
The FTSE 250, dominated by domestic stocks, underperformed the blue-chip index, which was related to sterling's move to a one-month high against the US dollar on the back of improving UK economic data and growth projections.
The International Monetary Fund increased its projections for UK growth in 2014 for the second time this year. It now expects the UK economy to grow at 2.9% in 2014, up from the 2.5% growth it predicted in January, while growth will still moderate in 2015, although to 2.5% compared with the 2.2% the IMF predicted in January.
The IMF forecasts followed domestic data which showed that UK manufacturing production expanded by 0.9% month-on-month in February, faster than the 0.3% growth recorded in January and exceeding economists' expectations of steady growth. On an annual basis, manufacturing production grew by 3.8%, up from 3.2% in January and at the fastest rate since February 2011.
The Quarterly Economic Survey from the British Chambers of Commerce also showed that the UK service sector exports rose to an all-time high in the first quarter.
The stream of positive data, particularly the strong manufacturing data that suggested a more broad-based recovery is taking hold in the economy, sent the pound up more than a cent against the dollar to a one month high of USD1.6754. However, it helped weigh on the FTSE 250, as investors feared it could signal an earlier-than-expected interest rate increase, which is deemed bad news for UK companies reliant on a still-fragile consumer spending recovery.
"While stocks have come under pressure across the board, in the case of the FTSE 250 it is also held back by the higher pound due to raised expectations for an earlier-than-forecast Band of England rate hike. Today?s release of solid UK manufacturing data underscores this view," said Forex.com analyst Fawad Razaqzada.
"If you are getting this continued improvement in economic data then company earnings need to grow commensurately to offset the withdrawal of central bank stimulus," CMC Markets chief market analyst Michael Hewson added.
Investors remain vigilant about developments in Ukraine as tensions continue in the east of the country. Ukrainian security forces drove pro-Russian demonstrators from a government building in the eastern city of Kharkiv as NATO warned Russia that an intervention in Ukraine's east would be an "historic mistake". The local government building in Kharkiv was one of three occupied by pro-Russian activists, along with buildings in Luhansk and Donetsk. No shots were fired in the operation.
On an individual stock level, Sports Direct closed down 9.2% on the news that Ashley sold GBP204 million worth of shares. He is left with a 57.7% stake in the sports goods retailer. People familiar with the situation told the Financial Times that the sale was unrelated to Sports Direct's acquisition of a stake in House of Fraser and was part of a programme of regular share sales, and designed to increase liquidity in the stock.
The news comes after Sports Direct shareholders last week rejected a GBP72.5 million share bonus package for Ashley, the third time that an attempt to reward the founder has been rejected. He has not been paid for his executive role at the company since the business was listed in February 2007.
In the FTSE 250, Hikma Pharmaceuticals was the heaviest faller, closing down 9.1% after being downgraded by to Neutral, from Buy, by UBS. Analysts at the bank said it is "time to take a pause and breath" as the company closes in on UBS's 1,700.00 pence price target.
The geopolitical uncertainty in Ukraine kept precious metal prices well supported, in turn supporting the mining stocks. Gold rose almost 1.0% to a near two-week high Tuesday of USD1,314.33 an ounce, while silver also rose almost 1.0% to a high of USD20.177 an ounce.
The FTSE 350 mining sector index gained 1.1% Tuesday, led higher by Rio Tinto, Randgold Resources, and Antofagasta, which closed up 2.5%, 1.8%, and 2.3%, respectively.
On Wednesday, the minutes from the latest Federal Reserve policy meeting will be released after the European markets close. It was Janet Yellen's first meeting as Fed Chair. Ahead of that, Minneapolis Federal Reserve head Narayana Kocherlakota is due to speak at at 1730 GMT.
The British Retail Consortium shop price index will be released overnight, with UK trade balance data also due Wednesday at 0830 GMT. The same data from Germany will be released before that at 0600 GMT.
On the corporate calendar, Evraz will put out results, while WS Atkins and UK Mail give trading updates, and Centamin provides a production report for the first quarter of the year.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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