Sharp losses from oil producers and miners sent the FTSE 100 index firmly through a key level on Wednesday, as investors worried that a key prop for the index could be about to disappear.
The U.K. FTSE 100 index fell 1.7%, or 105.70 points, to 5,952.00, placing the index on track to close under 6,000 for the first time since the end of April.
"A firmer dollar and falls in the oil price caused commodity stocks to weaken. Banks fell further on continuing credit concerns and funding worries and companies trading ex-dividend took 14.8 points off the FTSE value," noted Michael Owens, trader at CMC Markets.
Telecom major Vodafone Group (NYSE:VOD) was among those trading without rights to the latest dividend payout rights on Wednesday, down 4.6%.
In the oil and gas sector, shares of BP fell 3.2%, shares of Royal Dutch Shell (NYSE:RDSA) lost 2.6% and natural gas producer BG Group slid 1.8%.
In the mining sector, shares in BHP Billion lost 2.2%, while shares of Anglo American slid 2.3%.
The losses followed more weakness in oil and gold prices, with light sweet crude futures down 74 cents at $123.58 a barrel in electronic trading and gold futures down $5.30 at $876.30 an ounce.
A weaker dollar has been linked to encouraging investors to buy commodity- price sensitive stocks. However, on Tuesday, U.S. Federal Reserve chairman Ben Bernanke signaled the U.S. could move to support the dollar, which some investors took as a signal that dollar weakness won't be a significant factor in the future, sending crude futures to a near three-week low.
On Wednesday, the dollar edged up 0.2% against sterling to trade at $1.9564.
Companies linked to the housing market were mixed as deal speculation boosted a handful of firms, helping to offset another downbeat prediction for house prices this year.
Shares in mortgage lender Alliance & Leicester rose 3.3% after a report that TPG Group is planning to use its investment in U.K. buy-to-let lender Bradford & Bingley as a springboard to buy stakes in other distressed British financials.
The Daily Telegraph reported, citing unnamed sources, that Paragon and Alliance & Leicester are seen as the most obvious targets.
Paragon shares rose 3.6% outside the top index.
However, homebuilders - a sector that mostly trades in the mid-cap FTSE 250 - fell after UBS warned that U.K. house prices could fall by between 15% and 20%, given the current severe lack of mortgage availability. UBS cut Bellway (LSE:BWY) , Redrow and Persimmon to sell from neutral
Shares of Bellway (LSE:BWY) dropped 3.1%, Redrow shares lost 5.9% and the only FTSE 100 firm in the sector, Persimmon dropped 2.4%.
Other house builders joined in the rout, with shares of Taylor Wimpey down 4% and Barrett Development shares down 7.8%.
"With volume likely to be down by around 30% at least, sector profitability could be put under extreme pressure," the UBS analysts said.
They added that, while the sector discount to historic tangible book value may look attractive at 45%: "we see no positive catalysts with risk of capital raisings."
Adding to the gloom over the domestic economy, data showed that U.K. consumer confidence fell to its weakest level in four years in May.
The purchasing managers index for the British service sector posted a larger- than-expected drop in May, news reports said, falling to 49.8 from a reading of 50.4 in April. Any figure below 50 indicates contraction.
Elsewhere, shares of online betting group Sportingbet climbed 4.2%.
Sportingbet returned to profit in its latest quarter, but it indicated that legal uncertainties over Internet betting are far from resolved, with two employees still in custody and talks with U.S. authorities continuing.
(END) Dow Jones Newswires 06-04-08 0714 Copyright (c) 2008 Dow Jones & Company, Inc.
