City off as investor caution outweighs growth figures

The estimated 1.1 per cent advance – the highest for more than four years – was driven by services and construction firms although growth is set to slow as deficit-tackling measures kick in.

Traders were in "wait and see" mode for much of the day ahead of the stress test results.

The top flight finished 1.19 points lower at 5312.62 after a nervy session.

The Dow Jones Industrial Average made some headway in early trading after more forecast-topping figures from US companies.

Results from the likes of Ford, Microsoft and American Express pleased analysts.

Ford posted a stronger-than-expected quarterly profit of $2.6bn and said it was on track for higher earnings and lower debt in 2011, sending its shares up 3 per cent in pre-market trade.

The number two US automaker lowered the top end of its range for US auto industry sales for 2010, citing in part a slow but sustainable recovery in the US economy.

"We delivered a very strong second quarter and first half of 2010 and are ahead of where we thought we would be despite the still-challenging business conditions," chief executive Alan Mulally said.

Ford trimmed automotive debt by $7bn in the second quarter and it expects to further reduce its debt. It ended the quarter with $27.3bn of automotive debt.

Sterling gained ground following the GDP estimates as markets absorbed a heightened chance of rate rises. The pound ticked above 1.54 against the dollar and approached 1.20 against the euro.

Unsurprisingly, banks were in sharp focus in the top flight, although most financials were among the blue-chip losers. HSBC fell 83/4p to 6461/4p, Standard Chartered shed 18p to 1824p, and Barclays was 15/8p cheaper at 302p.

Stronger mining stocks and a gain of 1 per cent for mobile phone giant Vodafone helped offset some of the investor caution. Vodafone gained 11/2p to 1501/2p – a three-month high – after it reported its first growth in service revenues since the global recession hit.

Elsewhere in the telecoms sector, BT shares were lower after the regulator ruled out changes that would have allowed the company to raise wholesale prices in order to plug the huge deficit in its pension fund. The stock fell 1/4p to 1403/4p.

TalkTalk – one of BT's rivals let off the hook by the Ofcom proposal – rose 1/2p to 120p in the FTSE 250, while BSkyB also lifted 2p to 702p in the top flight.

Technology group ARM Holdings was the biggest blue-chip gainer, advancing 12 per cent, or 363/4p to 3531/4p, after the chip designer made the announcement of a multi-year licensing contract with software giant Microsoft.

Engines group Rolls-Royce was among the fallers, down 41/2p to stand at 607p, as investors took some profit after a good run for the company, which has unveiled a clutch of new contracts this week at the Farnborough air show.

In the FTSE 250 oil and gas firm Dana Petroleum added 201p to 1706p, or 13 per cent, although its Korean suitor said it had not yet received a "satisfactory response" to its latest bid proposal.

The biggest Footsie risers were ARM Holdings, Wolseley ahead 62p to 1442p, Cobham up 71/8p to 2475/8p and Rexam advancing 93/4p to 3463/4p.

The biggest fallers were TUI Travel down 95/8p to 2221/4p, Smith & Nephew off 14p to 556p and AstraZeneca down 761/2p to stand at 31461/2p.