U.K. Stocks Drop; British Airways, Carnival Fall on Swine Flu

By Alexis Xydias

April 27 (Bloomberg) -- U.K. stocks fell from a ten-week high, led by British Airways Plc and Carnival Plc on concern the spread of swine flu may damp earnings at travel-related companies.

British Airways, the U.K.’s largest airline, and Carnival slipped more than 7 percent after the swine-flu outbreak spread beyond Mexico and the U.S. as the American government declared a public health emergency.

The FTSE 100 Index decreased 28.4, or 0.7 percent, to 4,127.59 as of 12:04 p.m. in London, after closing last week at the highest since Feb. 13. The FTSE All-Share Index dropped 0.8 percent, while Ireland’s ISEQ Index retreated 1.1 percent.

The FTSE 100 has rebounded 17 percent from its low this year on March 3 amid optimism that the worst of the global recession may be over. Almost $1.3 trillion in bank losses worldwide since the start of 2007 dragged the U.K. benchmark index down 48 percent between June 2007 and March this year.

“The market is at or around resistance levels after the strong gains we’ve seen, so anything that may precipitate selling pressure will certainly do it,” said Angus Campbell, head of sales at Capital Spreads in London. Investors “are going to target” travel-related stocks “if you get headlines” like the swine flu outbreak.

Credit Suisse Group AG strategists today advised buying U.K. stocks, saying easing credit conditions and lower interest rates and share prices will underpin an outperformance of the market relative to other regions.

Swine Flu

British Airways dropped 7.9 percent to 151 pence amid concern the outbreak of swine flu will depress global demand for air travel. Carnival, the world’s biggest cruise-line company, slipped 7.3 percent to 1,798 pence. TUI Travel, Europe’s largest travel company, dropped 4.1 percent to 260.5 pence. InterContinental Hotels Group Plc, owner of the Holiday Inn lodging brand, declined 4.8 percent to 639.5 pence.

A growing number of swine flu cases led the U.S. government to release stockpiles of medicine. Japan, Malaysia and Singapore said they are screening passengers at checkpoints for fever, while Hong Kong raised its swine-flu response level.

One person in Spain has been confirmed as suffering from swine flu in Europe’s first case of the disease, Health Minister Trinidad Jimenez said.

GlaxoSmithKline Plc advanced 3.7 percent to 1,043 pence. Britain’s biggest pharmaceutical company is producing its Relenza flu treatment at “full capacity” following the spread of swine flu, spokesman Stephen Rea said in a phone interview today.

Irish Banks

AstraZeneca Plc added 3 percent to 2,465 pence. The U.K.’s second-largest drugmaker was upgraded to “buy” from “neutral” at UBS AG, which cited a “valuation at historic lows.”

Allied Irish Banks Plc, the country’s biggest lender by market value, fell 5.2 percent to 81 cents. Rival Bank of Ireland Plc dropped 7.6 percent to 61 cents.

Ireland’s government is preparing to buy 90 billion euros ($119 billion) of property loans in a bid to stave off nationalizing its biggest lenders. It may still end up with majority control of the country’s banks.

Companies led by Allied Irish Banks may get 25 percent less than the face value of their loans under the proposal from the National Asset Management Agency, according to the median estimate of seven analysts surveyed by Bloomberg News. That implies losses of 22.5 billion euros. Analyst estimates for the discount ranged from 15 percent to 30 percent.

The following stocks also rose or fell in U.K. and Irish markets:

U.K. companies:

3i Group Plc (III LN) declined 30.75 pence, or 8.3 percent, to 341. The U.K.’s biggest publicly traded private-equity firm said it’s considering selling shares in a rights offering to reduce debt.

Aviva Plc (AV/ LN) advanced 9 pence, or 3.3 percent, to 282.25. The U.K.’s biggest insurer said its capital surplus increased to 2.5 billion pounds ($3.64 billion) at the end of the first quarter from 2 billion pounds three months earlier.

First-quarter revenue from Aviva’s life and pension business rose to 9.6 billion pounds from 8.6 billion pounds a year earlier, the London-based insurer said. Sales in North America increased 84 percent.

Venture Production Plc (VPC LN), an oil and gas producer, rose 9 pence, or 1.1 percent, to 806, a third day of gains. RWE AG and Vattenfall AB have been invited to bid for Venture and are analyzing the company’s books in preparation to make offers, the London-based Sunday Times reported without saying where it got the information.

Irish companies:

CRH Plc (CRH ID), Europe’s largest maker and distributor of building materials, climbed 22 cents, or 1.3 percent, to 17.04 euros. The company and rival Cie. de Saint-Gobain SA were among European suppliers upgraded by Credit Suisse, which citied a possible U.S. housing recovery this year. The stock was raised to “outperform” from “neutral.”

Independent News & Media Plc (INM ID) fell 2.6 cents, or 11 percent, to 23 cents. The Irish Times reported April 25 that Denis O’Brien, the media company’s second-largest shareholder, said the company has a “50-50” chance of refinancing a 200 million-euro ($263 million) bond due next month.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.