U.K. Stocks Fall as Government Raises RBS Stake; Xstrata Drops

By Sarah Jones

Nov. 3 (Bloomberg) -- U.K. stocks retreated, led by Royal Bank of Scotland Group Plc after the government increased its stake in Britain’s largest lender and mining companies followed metals prices lower.

RBS lost more than 3 percent after saying it will sell its insurance division and bank branches following negotiations with the European Commission and the U.K. Treasury. Xstrata Plc and Kazakhmys Plc declined 3.2 percent as copper, lead and nickel fell in London.

The benchmark FTSE 100 Index lost 67.73, or 1.3 percent, to 5,036.77 at 8:44 a.m. in London, erasing all of yesterday’s 1.2 advance. The FTSE All-Share Index slipped 1.3 percent and Ireland’s ISEQ Index dropped 1.9 percent.

The FTSE 100 has surged 43 percent since this year’s low in March as companies reported better-than-expected earnings and investors speculated the worst recession since World War II is abating.

RBS dropped 3.5 percent to 37.31 pence, extending yesterday’s 7.8 percent decline. The lender agreed to take an additional 25.5 billion pounds ($41.6 billion) from the government, making its rescue the most expensive bailout in the world.

The increased aid will boost the state’s stake to 84.4 percent from 70 percent after restructuring talks with the European Commission, the European Union’s executive arm. RBS said it will put 282 billion pounds of assets into the government’s insurance program, less than previously announced.

‘Serious Consequences’

In Ireland, Allied Irish Banks Plc and Bank of Ireland Plc, which have received 7 billion euros ($10.3 billion) from the Irish government, slumped 10 percent to 1.51 euros and 8.8 percent to 1.46 euros, respectively. Allied Irish Chairman Dan O’Connor last week said the bank could face “serious consequences” from its negotiations with Europe.

Lloyds Banking Group Plc rallied 2.1 percent to 86.75 pence. The country’s largest mortgage lender plans to raise 21 billion pounds ($34 billion) in Britain’s biggest rights offering, denying the government majority control.

Xstrata, the world’s fourth-largest copper producer, lost 3.2 percent to 892 pence. Kazakhmys, Kazakhstan’s bigger copper producer, sank 3.2 percent to 1,102 pence.

Copper declined as concern about the possible withdrawal of stimulus measures outweighed better-than-expected manufacturing data in China and the U.S., the world’s two largest consumers of the metal.

The base metal fell $95 a metric ton, or 1.5 percent, to $6,460 a ton as of 8:03 a.m. local time.

To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net.