FTSE in negative territory over US Fed policy decision

The rally seen on Monday was put on hold as investors waited to see if America's central bank might take new actions to stimulate the economy.

The FTSE 100 Index soared 1.7 per cent on Monday, pushing past the 5600 barrier for the first time since late April, but fell 26.35 points yesterday to 5576.19.

The Dow Jones Industrial Average on Wall Street also dropped into the red in early trading despite encouraging news that the construction of US homes and apartments rose last month to the highest level since April.

Groundbreaking for new homes in the US jumped in August to a four-month high, a tentative sign of stability in the housing market after steep declines brought by the end of a homebuyer tax credit.

Analysts said the data yesterday further allayed fears that the recovery from the worst recession since the Great Depression was at risk.

"It suggests we have hit bottom (in housing)," said David Wyss, chief economist at Standard & Poor's in New York.

"The economic numbers in the last last six weeks have been a little bit more encouraging and unless (Fed policymakers) feel there is a significant major risk of a double-dip, I think they will try to keep their powder dry."

Monday's optimism had seen the Dow soar by 1.4 per cent the previous session to reach its highest close since May 13.

Most economists think the US central bank will leave policy unchanged, which could trigger a short-term sell-off in markets.

The dollar weakened due to volatility surrounding the Fed's decision, with the pound and euro gaining some ground against the greenback.

Sterling edged a little higher to 1.56 dollars.

Among stocks in London yesterday, one of the biggest gains came from Cairn Energy after an update on its exploration activities off the coast of Greenland.

While the Edinburgh-based company abandoned one of its wells because it does not have commercial gas, shares rose 2 per cent, or 93/4p to 4361/2p, after analysis of hydrocarbons from another site confirmed the presence of two oil types.

Lloyds Banking Group lost some of Monday's 3 per cent gain seen after it announced that chief executive Eric Daniels was planning to retire next year. The part-nationalised bank's shares closed down 1/2p to 767/8p.

Supermarkets also shed some of the gains that were seen on Monday, with the benefits of a positive broker note on the sector fading away.

Tesco eased 41/2p to 433p, Sainsbury's slipped 21/4p to 3913/4p and Morrisons was 13/4p cheaper at 3041/2p.

In another quiet session for corporate results, JD Sports Fashion managed to take centre stage with a 36 per cent rise in half-year profits to 19.3m.

The figures were ahead of expectations and shares rose despite the company giving an uncertain outlook for trading prospects going forward. The stock finished 261/2p higher at 8491/2p – a 3 per cent rise.

Also in the second tier, shares in oilfield services provider Wellstream rocketed by 29 per cent after it revealed a number of takeover approaches.

The stock rose 176p to 785p and helped FTSE 250 peer John Wood Group also make gains, ahead 255/8p to 4161/4p as traders saw Wellstream's news as a sign of the potential for mergers and acquisitions in the oil and gas service sector.

The biggest Footsie risers were Vedanta Resources up 49p to 2202p, Cairn Energy, Wolseley up 29p to 1498p and Smiths Group up 22p to 1242p.

The biggest Footsie fallers were Eurasian Natural Resources down 25p to 8891/2p and African Barrick Gold down 121/2p to stand at 5861/2p.