U.K. Stocks Drop as Rate Cut Fails to Ease Economic Concerns

By Gareth Gore

Jan. 8 (Bloomberg) -- U.K. stocks declined for a second day as the Bank of England’s interest-rate cut to the lowest in its three-century history failed to ease concern the recession will erode earnings.

Rio Tinto Group and BHP Billiton Ltd. tumbled more than 6 percent as copper slid for a second day. Tesco Plc and Marks & Spencer Group Plc led retailers lower after Wal-Mart Stores Inc., the world’s largest retailer, cut its fourth-quarter profit forecast. Royal Bank of Scotland Group Plc rose 3.5 percent after the lender said it may sell shares in Bank of China Ltd.

The benchmark FTSE 100 Index sank 66.59, or 1.5 percent, to 4,440.92 as of 2:07 p.m. in London, erasing most of 2009’s gains. The broader All-Share Index also retreated 1.5 percent. Ireland’s ISEQ Overall Index slipped 0.6 percent.

The Bank of England today reduced borrowing costs to the lowest since it was founded in 1694, reducing the benchmark rate by 50 basis points to 1.5 percent as policy makers tried to prevent the credit squeeze from deepening Britain’s recession.

The cut is “too little too late,” said Felix Riley, London-based head of binaries products at ChoiceOdds, a spread- betting unit of MF Global Ltd. “Interest rates are a blunt and presently impotent weapon. It’s political pressure on the banks to lend that is required as much as anything.”

Rio, the world’s third-largest mining company, dropped 7.7 percent to 1,672 pence. Copper for delivery in three months declined as much as 4.5 percent to $3,191 a ton in London. Nickel, tin, aluminum and zinc also retreated.

Separately, Rio said it will reduce output from its Kestrel coal mine in Australia by 15 percent as the global recession curbs demand for raw materials. The company is already cutting 14,000 jobs worldwide.

BHP, the world’s biggest miner, lost 6.5 percent to 1,248 pence. Vedanta Resources Plc., India’s largest copper producer, sank 8 percent to 690 pence. Xstrata Plc, the world’s fourth- biggest copper producer, slid 8.1 percent to 835.5 pence.

Tesco, the U.K.’s biggest supermarket chain, lost 4.1 percent to 345.5 pence. Marks & Spencer, Britain’s largest clothing retailer, slipped 5.5 percent to 230.5 pence. William Morrison Supermarkets Plc, the smallest of the four main U.K. food retailers, lost 4.2 percent to 270 pence.

Wal-Mart today cut its fourth-quarter profit forecast and predicted January revenue may be little changed as customers continue to rein in spending. Macy’s Inc., the second-largest U.S. department-store chain, also reduced its earnings forecast.

RBS added 3.7 percent to 50.8 pence. The biggest bank to be controlled by the U.K. government said it’s considering joining UBS AG and Hong Kong billionaire Li Ka-shing in selling Bank of China shares after a three-year lockup ended.

The following stocks also rose or fell in the U.K. and Ireland. Company symbols are in parentheses.

Eaga Plc (EAGA LN) lost 11.25 pence, or 8 percent, to 130, the steepest decline in more than two months. Goldman Sachs Group Inc. cut its recommendation on the U.K. company that runs a program to provide heating and energy insulation for the elderly to “neutral” from “buy.”

EasyJet Plc (EZJ LN) advanced for a third day, adding 8 pence, or 2.8 percent, to 295.5. The low-cost airline’s founder and largest shareholder Stelios Haji-Ioannou has backed down from his demand to appoint two of his own nominees to the board of the airline, the Financial Times reported.

Hays Plc (HAS LN) slumped 2 pence, or 2.6 percent, to 74.5. Britain’s largest recruitment company said net fees fell 10 percent in the quarter ended Dec. 31 as the recession caused companies to stop hiring full-time staff and the pace of layoffs increased.

Jardine Lloyd Thompson Plc (JLT LN) surged 27 pence, or 6 percent, to 477 pence. Merrill Lynch & Co. raised its recommendation on the U.K.’s biggest publicly traded insurance broker to “buy” from “neutral,” saying that the underwriting market is “becoming more supportive.”

Rathbone Brothers Plc (RAT LN) lost 59.5 pence, or 7 percent, to 786, the lowest in a month. The private-banking and investment-management company said funds under management dropped 20 percent to 10.5 billion pounds ($16.1 billion) at the end of December as stock markets tumbled and clients withdrew money.

Wellstream Holdings Plc (WSM LN) increased for a fifth day, adding 28.5 pence, or 6.4 percent, to 472.25. The supplier of oil and gas pipes to companies including Petroleo Brasileiro SA said earnings will rise in 2009 and it probably met profit forecasts for 2008 as sales grew more than 35 percent.

To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net