U.K. Stocks Fall, Led by Banks; HSBC, Barclays, Rentokil Fall

By Adam Haigh

July 25 (Bloomberg) -- U.K. stocks dropped, with an index of banking stocks falling the most in nine days, as concern deepened credit losses and the economic slowdown will damp earnings.

HSBC Holdings Plc and Barclays Plc led declines after financial shares in the U.S. slumped the most in eight years yesterday. Rentokil Initial Plc tumbled by a record after the world's largest pest-control provider cut its profit forecast. Rolls-Royce Group Plc slid as Deutsche Bank AG recommended investors sell the shares.

The benchmark FTSE 100 Index declined 20.8, or 0.4 percent, to 5,341.5 at 9:39 a.m. in London. The measure has fallen 0.7 percent this week. The FTSE All-Share Index fell 0.6 percent today and Ireland's ISEQ Index decreased 2.1 percent.

``Banks are a territory to walk away from,'' Steven Pope, chief global strategist at Cantor Fitzgerald in London, said in a Bloomberg Television interview. ``Overall we are in difficult position because central banks are walking a tight line between inflation and recession.'

The FTSE 350 Banks Index fell 3.2 percent, the most since July 15. The index had rallied 6.3 percent this week following better-than-expected results from JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co.

HSBC, the largest U.K. bank, slid 2.1 percent to 820.5 pence. Barclays, the fourth-biggest, lost 4.1 percent to 333.75 pence.

U.S. financial shares retreated yesterday after a report showed sales of previously owned homes fell to the lowest in a decade and investor Bill Gross predicted the housing slump will cost banks and brokerages $1 trillion.

Margins Shrink

Rentokil Initial dropped 28 percent to 73.25 pence after cutting its forecast for annual profit after margins at its washroom services division shrank.

Rolls Royce lost 3.2 percent to 359.5 pence, the most in two weeks. Deutsche Bank cut its recommendation to ``sell'' from ``neutral,'' which said an economic slowdown and record oil prices are curbing demand.

BHP Billiton Plc, the world's largest mining company, added 2.4 percent to 1,577 pence and Rio Tinto Group Plc, the third biggest, climbed 1.7 percent to 4,989 pence. Copper gained 0.5 percent to $7,943 a metric ton in London.

BP Plc advanced 1.2 percent to 518.75 pence. Crude rose in New York on concern supply in Iran and Nigeria may be disrupted.

The following stocks also rose or fell in the U.K. market. Stock symbols are in parentheses.

U.K. Companies:

Beazley Group Plc (BEZ LN) slid 5 pence, or 4.4 percent to 108.75 pence. The Lloyd's of London insurer said profit fell 23 percent as claims rose and revenue declined.

Britvic Plc (BVIC LN), the U.K. bottler for PepsiCo Inc. soft drinks, declined 7.25 pence, or 2.8 percent, to 248.25. Chief Executive Officer Paul Moody said pub sales of sodas will ``remain challenging'' and anticipated rising costs. Merrill Lynch & Co. analyst Olivier Nicolai described it as a ``cautious outlook.''

KCOM Group Plc (KCOM LN), a seller of phone services in northern England for more than a century, slipped 4.25 pence, or 11 percent, to 35.25 after saying first-quarter sales were lower than the year-earlier period.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net