RTRS:FTSE drops back on growth, euro zone concerns
(Reuters) - Top share index fell to a two-week low on Wednesday, with banks and miners hit hard by concern about the global economy and with Spain's problems deepening.
The blue-chip FTSE 100 index was down 65.50 points, or 1.1 percent, at 5,794.16 at 1121 GMT, after touching its lowest since September 13.
"There is a lot of uncertainty at the moment on the macro(economic) side and a lack of visibility regarding growth in Europe, the U.S. fiscal cliff and a slowdown in China," HSBC Securities equity strategist Robert Parkes said.
"It is dangerous to have an extreme position in either direction. But we still like sectors such as banks, energy and utilities. The energy sector offers good value, has a fair degree of earnings visibility and it is not as much exposed to the global business cycle as some other sectors. Utilities have been an unloved sector for some time, but offer a lot of value."
A London mining index fell 2.2 percent, banks were down 2.2 percent and the oil and gas sector off 0.
Philadelphia Federal Reserve President Charles Plosser said the U.S. Fed's latest monetary stimulus would not do much to boost economic growth or lower unemployment and raised the risk of longer-run inflation.
Elsewhere, The Bank of Spain said the country's gross domestic product prolonged its sharp fall in the third quarter.
DEFENSIVE
Some defensive shares performed better, with British American Tobacco up 0.4 percent and Imperial Tobacco down just 0.3 percent. Overall, most shares were lower.
"There is a bit of defensive rotation going on. Sectors such as banks and miners hit the top of their ranges and have pulled back from there," Westhouse Securities analyst Dominic Hawker said.
"The FTSE is facing a consolidation within an uptrend at the moment. Over the last four months, we had a series of rising lows and rising highs and that has not been negated yet. While that remains in place, the market is underpinned."
Ian Richards, global head of equities strategy at Exane BNP Paribas, said valuations would be the strongest influence on long-term equity returns as the market was looked cheap relative to history. He saw 12 times forward as the fair value price-to-earnings multiple for the FTSE 100.
According to Thomson Reuters Datastream, the FTSE trades at 10.7 times forecast one-year forward earnings, compared with a 10-year average of 11.5 times and a multiple of 13 for the U.S. S&P 500 index.
"Our recommended sector portfolio is unashamedly pro-cyclical ... Non-cyclical growth looks too expensive on a relative basis, and the cheaper defensives face specific challenges," Richards said in a note, adding he saw fair value for the FTSE 100 at 6,500.
Exane said its "UK High Conviction basket" included IMI, Kingfisher, Lloyds and Rio Tinto.
Among individual movers, RSA Insurance fell 4.2 percent, as the stock traded ex-dividend.
Stocks trading without the entitlement to their latest dividend payout clipped 1.73 points off the FTSE 100 index, after the resulting adjustment to prices by market-makers, with Centrica and WM Morrison also trading ex-dividend.
The FTSE 100 is up 4 percent this year, compared with a 10 percent gain for Europe's FTSEurofirst 300 and the U.S. S&P 500 index's 15 percent rise.
