City slips as cautious US Fed comments knock sentiment

Investors flocked to the safe haven of gold as stocks on both sides of the Atlantic slipped into the red, with the dollar also under pressure following cautious comments from the US Federal Reserve.

The FTSE 100 Index closed 24.28 points lower at 5551.91, while the Dow Jones Industrial Average also declined in some volatile trading.

The US central bank on Tuesday kept the door ajar for more action to stimulate demand, but stopped short of providing specific detail.

The flight to safety meant the price of gold set its latest high at 1293.50 dollars an ounce, while the greenback fell sharply against other major currencies.

The metal is benefiting from concerns over the stability of the financial system. While dollar weakness, a typical driver of gold, is lifting prices, the metal's appeal as a safe store of value has broadened.

"This is not just about the dollar any more," said Pau Morilla-Giner, senior portfolio manager and head of alternative investments, equities and commodities at London & Capital.

"This is about any currency that is used and generated in a country with massive dislocations, an excess of sovereign debt and a weak banking system. And now, for the first time in history, all major Western currencies have that problem."

The dollar hit its lowest since late April versus the euro yesterday after the Fed signaled it may introduce fresh measures to bolster a sluggish US recovery.

The pound also found itself under pressure after minutes from the Bank of England's latest monetary policy committee meeting reinforced expectations that interest rates will remain at a record low of 0.5 per cent for some time to come. Sterling held its ground against a weak dollar, at 1.57 dollars, but fell by nearly 1 per cent to 1.17 euros.

The ascent in the price of gold meant African Barrick Gold and Randgold Resources were high up on the risers' board in London, up 141/2p to 601p and 180p to 6490p respectively. Other commodity stocks were also higher, with Xstrata 31p stronger at 11981/2p and Rio Tinto up 821/2p to 36521/2p.

The risers' board also included Imperial Tobacco, which climbed 2 per cent higher – up 32p to 1925p – after the world's fourth-largest tobacco group said it remained on track to meet expectations with revenues forecast at 3 per cent for the year to September.

Insurers were among the heavy fallers, with Aviva down 20p to 397p and Prudential off 6p to 613p. Marks & Spencer was also under pressure with a fall of 41/2p to 3763/4p.

Another quiet session for corporate news was dominated by the announcement from FirstGroup that its founder and chief executive Sir Moir Lockhead planned to leave the transport business at the end of March.

He will be replaced by former London Underground boss Tim O'Toole, but the announcement came as little surprise to investors as shares remained close to their opening mark with a drop of 17/8p to 3491/2p.

The biggest rise in the FTSE 250 Index came from Shanks Group following market speculation of fresh takeover interest from US private equity firm Carlyle.

The waste disposal group walked away from talks with Carlyle earlier in the year after rejecting an offer at 120p a share. The shares jumped 6 per cent, or 63/4p yesterday, but at 1101/4p are still well below the offer price earlier this year.

The biggest Footsie risers were Antofagasta up 37p to 1214p, Kazakhmys ahead 41p to 1441p, Randgold Resources and Xstrata.

The biggest Footsie fallers of the session were Aviva, Autonomy Corporation off 61p to 1768p, Invensys down 95/8p to 2813/4p and Weir Group, which ended the day down 45p to stand at 1395p.