International Airlines Share News (IAG)

LONDON (Alliance News) - UK stocks closed lower Friday for a second consecutive session, ensuring a big drop for the week as a whole, as investor sentiment continued to be hit by volatility in bond markets and the continuing impasse in the Greek debt deal talks.

The FTSE 100 ended down 0.8% at 6,804.60, and was down 2.6% for the week as a whole having only risen on Wednesday. The FTSE 250 closed down 0.9% at 17,931.29, ending below the 18,000 mark for the first time since mid-May. The AIM All-Share index finished down 0.2% at 775.74.

Europe's major indices also closed lower, with the CAC 40 in Paris and the DAX 30 in Frankfurt both closing down 1.3%.

"Greek bonds and stocks have been hit particularly hard, especially so given the potential damage done by the apparent turnaround by the Greek Prime Minister Alexis Tsipras in first suggesting the payment would be made, and then the subsequent decision to delay it," said Michael Hewson, chief market analyst at CMC Markets UK.

Greece delayed a key debt repayment of about EUR300 million due Friday to the International Monetary Fund. The Washington-based lender said Thursday that Greek authorities had said they will now bundle four payments due this month into a single EUR1.6 billion lump sum due on June 30.

Greece's government has been struggling since February to reach a deal with creditors from the eurozone and the IMF that would release the remaining EUR7.2 billion from its existing bailout in exchange for tough reforms. The main sticking points between Greece and creditors include: Targets on primary budget surpluses - the excess of revenues over expenditure before interest payments are made; value-added tax rates for different categories of goods and services; labour market and pension reforms.

Athens' decision to bundle its June loan repayments to the IMF into a single payment "does not make the problem smaller," said Jeroen Dijsselbloem, the head of the Eurogroup of eurozone finance ministers. Dijsselbloem told Dutch TV that a bailout solution was not yet in sight. "They are far away from that, and are threatening to drift off even further."

Berenberg analyst Holger Schmieding said by postponing Friday’s payment, Greece de facto acknowledges that it is running out of money fast. "To pay the IMF on 30 June, it will need to strike a deal with its lenders not much later than 20 June. The EU is reportedly aiming to finish talks by 15 June."

Greek Prime Minister Tsipras will address an emergency session of parliament on the status of negotiations with the country's creditors later Friday.

Aside from Greece, investors were closely watching the latest US employment data, as the market looks for clues on when the Federal Reserve will raise its interest rates, with some analysts predicting the first rise could come as early as September.

Employment in the US increased by much more than anticipated in May. The Labor Department said non-farm payroll employment jumped by 280,000 jobs in May, compared with economists' estimates for an increase of about 225,000 jobs.

While the increase in employment in April was downwardly revised to 221,000 jobs from 223,000 jobs, the employment growth in March was upwardly revised to 119,000 jobs from 85,000 jobs. With these revisions, the Labor Department said employment gains in March and April combined were 32,000 more than previously reported.

"While this is good news, what makes this a great report is that average earnings rose by 0.3%, the second time we’ve seen this in three months," said Oanda analyst Craig Erlam.

"The [US] economy is now primed for a consumer driven recovery and with disposable income boosted further by lower oil prices, it could very strong indeed," wrote Erlam. "All we’re missing now is that spending and once we get it, I don’t think the Fed will hold back in pulling the trigger."

Paul Ashworth, Chief US Economist at Capital Economics, said: "Overall, at this stage this evident strength in the labor market probably isn't enough to persuade the Fed to hike rates by July, but it definitely makes a rate cut by September probable."

The pound took a hit following the release of the US data and was trading at USD1,5256 when European stock markets closed.

Wall Street was mixed, with the DJIA down 0.1%, the S&P 500 was flat and the Nasdaq Composite was up 0.1%.

The Organization of the Petroleum Exporting Countries decided to maintain current production quotas after its meeting in Vienna, Austria, as many analysts expected, keeping it at 30 million barrels of oil per day.

"We expect global over-supply to continue at least until 2016 keeping the oil price at these low levels, especially if Iran reaches a deal on its nuclear installations," said VSA analyst Marc Anis-Hanna.

When European markets closed, oil was trading at the same levels it did before the OPEC published its decision. Brent was at USD61.67 while West Texas Intermediate was at USD57.85.

On the London Stock Exchange, some oil-related stocks ended higher. BP, up 0.5%, BG Group, up 0.3%, and Royal Dutch Shell 'A', up 0.1%, were amongst the best blue-chip performers.

International Consolidated Airlines Group ended up 1.6% after Aer Lingus Group said its traffic in May increased on the back of a recovery in its short-haul performance and better long-haul figures. The Irish flag carrier said traffic rose by 6.8% in the month to 1.7 billion revenue passenger kilometres, from 1.59 billion a year earlier.

Aer Lingus is currently the subject of a EUR1.4 billion takeover bid from IAG, a deal which has now received backing from the Irish government. The British Airways owner still needs to secure the support of budget carrier Ryanair Holdings, which owns a 29.8% stake in Aer Lingus. Aer Lingus shares were down 0.6%, while Ryanair ended down 1.0%.

Vodafone Group shares closed down 2.4%. The mobile communications company said it is in early talks with cable company Liberty Global about a possible asset exchange, but said it is not discussing any potential merger with the company.

Following Liberty Chairman John Malone's comments about Vodafone's European assets being like a 'banana in a jar', meaning hard to get to, there has been a lot of speculation about a potential combination between the two.

Reduced prospects for an outright merger weighed on Vodafone shares, but Deutsche Bank argued that "further elimination of bid speculation may afford a more attractive entry point to the Vodafone equity story which should continue to benefit from improving growth prospects and consolidation in Europe."

Wm Morrison Supermarkets, down 2.6%, was hit by a substantial shareholder rebellion against its remuneration report, with more than a third of the voting shareholders voting against. The grocer said 38% of shareholders who voted did so against the remuneration report, which included a proposal to give David Potts, its newly-appointed chief executive, a long-term incentive plan for 2015 which will be 300% of his salary. Media reports suggested another point of contention at the meeting was a GBP1 million bonus the company is paying to Dalton Phillips, the company's former chief executive.

In the corporate calendar Monday, Drax Group issues an interim management statement, while Falkland Islands Holdings, Phoenix IT Group and Abzena publish full year results and IDOX releases half year results.

In the economic calendar, German industrial production is due at 0700 BST, while eurozone Sentix Investor Confidence is due at 0930 BST. In the US, labor market conditions are due at 1500 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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