HSBC Holdings Share News (HSBA)

LONDON (Alliance News) - UK stocks closed significantly lower for the third consecutive day Friday, as investors remained downbeat amid sluggish European economic data and ongoing concern about the damaging impact that sanctions against Russia will have on Western economies.

Equities were lifted off their lows as after the monthly US jobs report struck the perfect balance for investors, signalling a continued recovery of the world's largest economy without growth being too-hot-to-handle at current monetary policy settings and forcing the Federal Reserve into an earlier than expected interest rate rise.

The FTSE 100 closed down 0.8% at 6,679.18, the FTSE 250 down 0.6% at 15,402.70, and the AIM All-Share down 0.8% at 762.35.

Major European markets also closed lower, with the CAC 40 down 1.0%, and the German DAX 30 down 2.1%.

After the European close, US stocks continue to trade lower, with the DJIA down 0.3%, the S&P 500 down 0.2%, and the Nasdaq Composite down 0.5%.

The US economy added 209,000 jobs in July, less than the 298,000 added in June. While that missed economists' expectations for a figure of 233,000, it's the fifth consecutive month that the US non-farm payroll has risen by more than 200,000, a level broadly considered to signify reasonable growth.

Although job growth remained strong, the headline rate of US unemployment rose to 6.2% in July, from 6.1% in June, explained in part by the participation rate ticking up to 62.9% from 62.8%. The Federal Reserve recently indicated that its new preferred measure of the labour market recovery is the underemployment rate, which also rose, to 12.2% from 12.1%.

Moreover, much like the UK, sluggish earnings growth has become just as important to US central bank policy as unemployment, and the July report recorded no earnings growth at all, below expectations for 0.2% growth.

Berenberg Bank Senior Economist Rob Wood called the report "a timely reminder that US economic data is not suddenly shifting into overdrive".

While stocks in the UK were lifted off their lowest levels by the US jobs report, equity sentiment remained subdued across Europe amid some disappointing readings of manufacturing activity.

UK manufacturing activity fell to its lowest level for a year in July, with the Markit manufacturing PMI dropping to 55.4, from 57.5 in June, missing expectations for just a small moderation to 57.2 and recording the slowest level of growth since July last year.

The disappointing UK print followed an unexpected drop in both the German and eurozone readings to 52.4 and 51.8, respectively.

"The July releases of PMI reports suggest an easing of growth in Europe, including quite a disappointment in the UK," said shore Capital equity strategist Gerard Lane.

Analysts said the drop in activity was in part due to the effect of of the situation in Ukraine and the sanctions against Russia. The real impact of those sanctions became clear this week when sportswear giant Adidas announced a profit warning and said it would be significantly scaling back its Russian expansion plans due the the current issues. EU leaders face a difficult path between punishing Russia for its part in the Ukraine crisis without doing too much damage to their own economies.

The particularly disappointing UK data sent the pound to a seven-week low against the dollar of USD1.6809 Friday. Against the euro, the pound reached a near three-week low of EUR1.2533.

Within UK stocks, mining shares were hit by the Chinese manufacturing PMI, which came in at 51.7 in July, up from 50.7 in June, but slightly lower than the 52.0 that had been expected. The miners were lifted off early lows after the US jobs report but the FTSE 350 sector index ended 1.0% lower.

International Consolidated Airlines was the top FTSE 100 gainer, ending 3.5% higher after its efforts to slash costs at Spanish airline Iberia continued to pay off, as it reported a big rise in operating profit in the second quarter and said it expects a big jump in profit for the full year. IAG, parent of British Airways, also said it would reduce its planned 2014 winter season capacity by three percentage points, after several European airlines in recent weeks warned that overcapacity was weighing on fares and hitting profits. The group reported operating profit, excluding exceptional items, of EUR380 million in the three months to June 30, up from EUR245 million a year earlier, as revenue rose 6.7% to EUR5.09 billion.

Smith & Nephew closed up 2.2% after announcing interim results slightly ahead of expectations. The surgical device business posted a pretax profit of USD128 million in the quarter, down from USD188 million a year earlier, on revenue of USD1.15 billion, up from USD1.07 billion. The group also proposed an interim dividend of 11.0 cents, up from 10.4 cents in the previous year.

Non-life insurance stocks were supported after FTSE 250 listed Direct Line announced interim results slightly ahead of the consensus expectation and surprised investors with a 10 pence special dividend. The insurer said it made a GBP225.1 million pretax profit in the six months ended June 30, compared with GBP208.8 million in the corresponding period last year. The UK insurance industry is continuing to come under the regulatory spotlight, but Direct Line's results were well received, boosting the stock 5.1%. Fellow insurer Admiral Group was one of the top FTSE 100 performers, ending 0.2% higher.

On Monday it's a relatively slow start to the week in both the economic and corporate calendars. The Chinese non-manufacturing PMI, released on Sunday night may provide an early driver, with the UK construction PMI providing the main domestic data focus later in the day.

HSBC's interim results will be the UK corporate highlight, with interim numbers also due from Fidessa Group, Intertek Group, Senior, esure Group, Alent, and Telecity Group.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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