Poor US housing data drags FTSE into negative territory

Surprising UK growth figures sent the pound soaring yesterday, but the news failed to offset falls on the FTSE 100 Index.

The 0.8 per cent rise in third quarter gross domestic product (GDP), based on provisional estimates by the Office for National Statistics, was double the 0.4 per cent expected.

While the pound received an immediate boost, the Footsie retreated into the red – down 44.68 points to 5707.30 – after a decline in US house prices and disappointing earnings from banking giant UBS.

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Wall Street's Dow Jones Industrial Average was also under pressure after a home-price index revealed a 0.1 per cent drop in houses prices in August.

Sentiment was further hit after UBS posted an overall profit in the third quarter of 1.66 billion Swiss francs (1bn), but its investment bank, which employs 6,300 at its London headquarters, suffered a loss of 265m.

Sterling jumped more than 1 per cent against other major currencies following the better-than-expected UK growth figures and after ratings agency Standard & Poor's revised its outlook on the UK from negative to stable.

The pound reached 1.59 US dollars and 1.14 euros, with yesterday's GDP data indicating the Bank of England will hold off from taking further emergency action to prop up the economic recovery.

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The banking sector saw falls in the wake of the UBS update, with Barclays down 4p to 2773/8p, Royal Bank of Scotland off 5/8p to 443/4p and HSBC 83/8p lower to stand at 660p.

The biggest fall in London, however, was recorded by Cairn Energy after an update on its Greenland exploration activities disappointed investors.

Shares dropped 7 per cent – off 291/2p to 3821/2p – after two wells were abandoned and another did not reach its target depth before the end of the Arctic drilling season, although it stressed operations may resume next year.

Other top flight fallers included ARM Holdings, despite better than expected third quarter profit and sales figures as it benefits from demand for its microchips in mobile phones and other gadgets.

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Shares were 23p lower at 3661/4p as analysts said the current share price reflected much of the upside in the stock.

Insurance firms were also under pressure after a downbeat review of the sector by brokers from Bank of America, prompting Legal & General to fall 11/4p to 1011/2p and Prudential to drop 101/2p to 6211/2p.

Outside the top flight, shares in transport group Go-Ahead were 7 per cent higher after it reported "robust" current trading and said it had identified the successor to chief executive Keith Ludeman, who is due to retire in July. Shares rose 85p to 1358p.

Brit Insurance lifted 24p to 1045p after directors recommended that shareholders accept a private equity offer worth up to 888m.

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The independent directors of the Lloyd's of London insurer have recommended that shareholders accept the offer of between 10.75 and 11 per share from private equity firms Apollo and CVC Capital Partners.

The offer values the shares at up to 51 per cent more than the closing price 7.29 on June 10 – the last day before an official 'offer period' for bids commenced.

The biggest Footsie risers were Carnival up 114p to 2768p, Pearson ahead 181/2p to 966p, Vodafone up 11/2p to 1673/8p and Kazakhmys ahead 11p to 1391p.

Four biggest fallers were Cairn Energy, ARM Holdings, BHP Billiton down 56p to 21961/2p and Cobham 61/8p lower at 2393/8p.