FTSE eases as RBS leads banks but Vodafone drags

Fri Aug 8, 2008 4:18am EDT
* FTSE down 0.18 pct

* Royal Bank of Scotland rises after first half update

* Goldman pulls Vodafone lower

By Michael Taylor

LONDON, Aug 8 (Reuters) - Britain's blue-chip index edged lower on Friday as Royal Bank of Scotland boosted banks after its results, although heavyweight Vodafone offset gains in the broader market after a broker rating cut.

At 0805 GMT the FTSE 100 .FTSE was down 9.8 points, or 0.18 percent at 5,466.4 after falling 0.2 percent on Thursday.

The index is now down about 15 percent for the year to date.

U.S. stocks tumbled on Thursday on fears of more fallout from the credit crisis, with Wal-Mart's cautious sales forecast adding to concerns about consumer spending. Japan's Nikkei .N225 ended higher, with exporters supporting.

And with little on the corporate calendar following Thursday's decision by the Bank of England to hold interest rates at 5 percent, eyes were on corporate events.

RBS initially fell before rising 1.6 percent after posting a first-half loss of 691 million pounds ($1.35 billion) -- one of the biggest losses in UK corporate history, but smaller than expected -- after taking a 5.9 billion writedown on the value of risky assets.

Other banks to feature among FTSE 100 gainers included HBOS and HSBC .

"It was widely expected there would be a loss for RBS, although it is significantly less than some analysts were predicting," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.

"It is one of those strange situations, and we saw it with Barclays yesterday and is rather a sign of the times, that while the figures are bad they're not as bad as they could have been."

"That sort of perverse logic is the reason the shares have lifted," Hunter added. "If you had to scratch for a positive, you'd say it's one more set of credit writedowns out of the way which must get us somewhere nearer to potentially turning the corner."

A Reuters poll of analysts offered a forecast for a loss of 1.2 billion pounds for RBS.

In other financials, asset manager Schroders (SDR.L: Quote, Profile, Research, Stock Buzz) was 1.5 percent lower after it said pretax profit in the first half of the year fell to 135.7 million pounds ($264.8 million) from 185.6 million pounds a year ago.

NEGATIVE BROKER COMMENT HITS VODAFONE

Heavyweight Vodafone lost 1.7 percent after Goldman Sachs cut its rating to "neutral" and took the mobile phone group off its "conviction buy" list of preferred stocks.

But Smith & Nephew (SN.L: Quote, Profile, Research, Stock Buzz) extended a 5.2 percent gain on Thursday to add 3.4 percent after Goldman raised its price target for Europe's biggest medical device maker to 520 pence from 500 pence.

The stock rallied in the previous session after the company's second quarter revenues hit $1 billion for the first time.

In commodities, gas producer BG Group (BG.L: Quote, Profile, Research, Stock Buzz) tacked on 2.9 percent after it said it had made a material new oil discovery off the coast of Brazil.

But with U.S. crude prices CLc1 back below $119 a barrel, heavyweight oil shares BP and Shell lost 0.3 and 0.5 respectively.

Lonmin was up 0.4 percent after the Financial Times reported that M&G, the biggest shareholder in the London-based platinum producer, had rebuffed Xstrata's hostile offer. Xstrata shares fell 1.9 percent.

With base metals drifting lower, Kazakhmys , Vedanta and Rio Tinto fell 1.4-2.1 percent.

British Airways (BAY.L: Quote, Profile, Research, Stock Buzz) advanced 2.6 percent after the Daily Mail said the airline is planning to make an application early next week to the U.S. Department of Transport that could allow it to forge closer links with American Airlines .

Among other decliners, British American Tobacco lost 3 percent after Swiss luxury goods maker Richemont said it was creating a new investment vehicle to hold its near 20 percent stake in the London-listed company.