City slides as news from BP and Lloyds fails to inspire

The bank posted forecast-beating first-half profits of 1.6bn, while oil giant BP has finally plugged its catastrophic Gulf of Mexico spill.

The pair both made gains in a see-saw session for the FTSE 100 Index, which eventually closed 10.32 points lower at 5386.16.

Markets started on the back foot after weak factory orders and housing figures in the United States dampened the mood, although stronger-than- expected growth among US service sector firms in July helped Wall Street's Dow Jones make gains.

After a strong run for the pound against the dollar, the greenback fought back as sterling eased to 1.58. The pound held above 1.20 against the euro.

Lloyds was the London market's top riser, with shares up 2.57p to 74.49p, on news of the bank's turnaround from losses of 4 billion a year earlier.

BP meanwhile, added 6p to 421.65p after it said its operation to cut the flow of oil by pumping mud into the Gulf well had been a success. The US government says most of the oil from the leak has now been dispersed.

Fashion chain Next was the leading casualty with shares down almost eight per cent after it warned that its prices may have to rise by as much as eight per cent next year.

In addition to a rise in costs, including the price of cotton, it warned that consumer spending would be more restrained in the second half of its financial year. High street like-for-like sales dropped 1.5 per cent in the 26 weeks to July 31 and could fall by as much as 4.5 per cent over the second half.

Shares were down 170p to 2029p, while the uncertain retail picture also dented Marks & Spencer as its shares slipped 10.4p to 350.2p.

Argos owner Home Retail Group dropped 9.3p to 235.2p and B&Q owner firm Kingfisher fell 71/2p to 216.3p.

Meanwhile, bank sector stocks endured a mixed session despite the positive news from Lloyds Banking Group. Asian-facing Standard Chartered was down 981/2p to stand at 1804p after it reported a weaker-than- expected half-year performance in consumer banking.

In the FTSE 250 Index, shares in Premier Foods survived the company's warning that rising wheat prices were likely to restrict second half profits at its Hovis bread division.

The company also posted a wider half-year loss but shares rose 1.74p to 19.74p as investors welcomed signs of progress in controlling costs.

Elsewhere, shares in Carpetright dropped 26p to 740p after it reported a 3.4 per cent drop in like-for-like sales in the UK and said it did not expect trading conditions to improve over the remainder of the financial year.

Chairman Lord Harris of Peckham said that he was staying cautious about the outlook for consumer spending over the rest of the year.

The company is going to focus on all of its costs, including capital expenditure.

He added: "As announced previously, we had expected consumer demand across Europe to remain subdued as we entered our new financial year, and this view is reflected in the update announced today."

The biggest Footsie risers were Lloyds up 2.57p to 74.49p, Randgold Resources ahead 160p to 5715p, African Barrick Gold up 151/2p to 5581/2p and Fresnillo which ended the session 28p better off 1098p.

The biggest Footsie fallers were Next down 170p to 2029p, Standard Chartered off 981/2p to 1804p, Home Retail Group down 9.3p to 235.2p, and Kingfisher which finished the day 71/2p worse off 216.3p.