U.K.’s Stocks Retreat, Led by Banks; Lloyds Banking, HSBC Drop

By Alexis Xydias

May 20 (Bloomberg) -- U.K. stocks declined, retreating from a four-month high, as an index of banking stocks fell for the first time in three days, overshadowing a rally in energy producers.

Lloyds Banking Group Plc slumped as investors lost the right to new shares while HSBC Holdings Plc declined as it traded without the right to the latest dividend. Royal Dutch Shell Group Plc and BP Plc climbed as oil rose for a third day.

The FTSE 100 Index fell 17.04, or 0.4 percent, to 4,465.21 at 11:37 a.m. in London, having risen to a four-month high earlier. The FTSE All-Share Index lost 0.3 percent, while Ireland’s ISEQ Index added 0.7 percent.

Global stock indexes are poised to pull back to their March lows as a rally led by so-called short-covering ends, according to David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates Inc. in Toronto.

“As doubts emerge over whether in fact the green shoots amount to anything more than dandelions, it now looks as though the major averages are about to embark on the fabled retesting phase towards the March lows,” Rosenberg, a former Merrill Lynch & Co. economist, wrote in a report dated yesterday, the first for his new employer.

The FTSE 100 has rallied 27 percent since the low this year on March 3, led by banks and companies most exposed to economic growth, on expectations the worst of a global recession is over. The FTSE 350 Banks Index has jumped 86 percent in the period.

“We may see a modest pull back,” said Lawrence Peterman, a strategist at Eden Financial in London. “We may see some rotation into defensives and out of financials in the short term.”

Lloyds Retreats

Lloyds, 43 percent owned by the government, fell 29 percent to 71.4 pence as it traded without the right to new shares the company is selling. Investors who held the stock until yesterday are entitled to 0.62 new shares at a price of 38.43 pence each. When adjusted for the right, the stock dropped 6.5 percent.

HSBC, Europe’s biggest bank, fell 2.1 percent to 562.75 pence, or 1 percent when adjusted for the latest dividend. Investors who buy the shares today will not get the payment.

Barclays Plc, the U.K.’s third-largest bank, declined 4.2 percent to 282.5 pence, dropping for the first day in five sessions. Standard Chartered Plc, which makes more than half of its earnings in Asia, declined 3.2 percent to 1,243 pence. The stock has gained 48 percent in 2009.

An index of banks, the FTSE 350 Banks Index, lost 4 percent today, snapping two days of gains.

Shell, Europe’s largest oil company, gained 1.6 percent to 1,662 pence. BP, the second’s biggest, added 0.8 percent to 513.5 pence.

Oil rose to its highest in six months before a report forecast to show that U.S. crude inventories dropped from their highest level in nearly 19 years.

British Airways Plc, Europe’s third-biggest airline, jumped 2.7 percent to 170.1 pence. Air France-KLM, the region’s largest carrier, reported a smaller full-year net loss than analysts had estimated and pledged to cut about 3,000 jobs. British Airways is scheduled to report earnings on May 22.

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