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FTSE dragged lower by miners, Bernanke eyed

LONDON - Britain’s top share index fell on Tuesday, weighed by mining stocks after Rio Tinto posted weak quarterly sales, with trade thin as traders awaited testimony from the US Federal Reserve chief for insight into its plans for extra stimulus.

The Anglo-Australian miner, down 2 percent, took 3 points off the index mid-way through the session following its production update, leading the sector lower as investors fretted about sluggish Chinese demand for metals.

Volume in the heavyweight stock was around 40 percent of its 90-day daily average, almost double that for the broader FTSE 100.

“Rio continues to face the industry-wide phenomenon of high cost inflation. These pressures, together with the strengthening of the Australian and Canadian currencies, escalating raw material prices and lower grades have all had a negative impact on margins,” Jonathan Jackson, head of equities at Killik & Co, said in a note.

He nevertheless suggested buying the stock on dips:

“We are positive on the stock, and believe it is a highly liquid way to gain exposure to long-term emerging market growth. We would therefore use today’s share price weakness as a buying opportunity.”

Near midday, the FTSE 100 was down 0.4 percent, or 23.16 points, at 5,639.27 points, but many traders pointed to the weak trading environment and low volumes, citing uncertainty around the Fed meeting as just one reason to stay on the sidelines.

Fed Chairman Ben Bernanke speaks to Congress on Tuesday and Wednesday and could give fresh clues to the US central bank’s plans for additional stimulus in light of recent weak economic data and the ongoing debt crisis in Europe.

“Things will remain pretty quiet ahead of the testimony, there is still quite a lot of uncertainty about whether they have enough data to support another bunch of QE, so someone would not want to put (on) a big position ahead of it,” said Louise Cooper, market strategist at BGC Partners.

With earnings season underway and corporate outlooks firmly in focus, plumbing supplies group Wolseley became the latest to signal the potential bottom-line hit from economic weakness in Europe.

The stock, among the top fallers from the open, was down 3.5 percent around midday in volume just off its 90-day daily average after it said difficult market conditions in continental Europe were continuing and that it would “explore strategic options” for the future of its businesses in France.

The top faller across the market, however, was once again security firm G4S, down 4 percent in volume more than double its 90-day daily average to record its fourth consecutive day of losses as a result of its Olympic contract troubles.

Among the less than 20 percent of firms to post gains by the half-way point were several heavyweight energy stocks, BP and Royal Dutch Shell, which were buoyed by a marginally higher oil price and some positive comment from Goldman Sachs.

“We maintain a positive view on Energy with overweights in the US, Europe and Asia ex.Japan due to attractive valuations and our view that the sell-off in oil prices will prove to be short lived,” analysts at the bank wrote in a note.