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LONDON (Alliance News) - London stock indices ended lower Tuesday, driven by a further sell-off in bond markets and continued concerns about Greek debt negotiations, with easyJet the worst-performing stock in the FTSE 100 after giving a weak outlook for the second half of its financial year.

The FTSE 100 ended down 1.4% at 6,933.80, meaning it has now erased almost all of the strong gains made on Friday following the UK general election results. The FTSE 250 closed down 1.0% at 17,689.23, while the AIM All-Share closed down 0.3% at 756.94.

Stock indices in mainland Europe also ended lower, with the CAC 40 in Paris down 1.1% and the DAX 30 in Frankfurt down 1.7%. Wall Street was down when the European equities markets closed, with the DJIA down 0.2%, and the S&P 500 and Nasdaq composite both down 0.3%.

Yields on the benchmark German 10-year bunds rose sharply, a move that unnerved investors in other assets including equities, said Forex.com analyst Fawad Razaqzada. "But the sell-off in bond prices is not a major surprise to us, for after all yields were driven to extremely – and probably unjustifiably – low or even negative levels in the recent past and were thus unsustainable at those extremes."

"On top of this, deflation risks have been reduced somewhat because of the rebound in oil prices, which reduces the appeal of safe haven government bonds," wrote Razaqzada.

Greece's debt problems also continued to weigh on investors' minds, as the Mediterranean country made a EUR756 million loan repayment to the International Monetary Fund on Monday just hours ahead of a Tuesday deadline.

Eurozone finance ministers said Monday that more time and effort is needed to reach an agreement over proposed reforms to keep Greece afloat. Greece's Finance Minister Yanis Varoufakis said the liquidity situation was "terribly urgent" and without bailout funds, the country would face a cash crunch in the next couple of weeks.

As equities declined, the pound rose to USD1.5661. The euro also strengthened against the dollar to USD1.1235.

Sterling strengthened after UK industrial production unexpectedly grew in March for a second straight month, led by a robust gain in oil and gas extraction and stronger manufacturing output, giving some respite from concerns of a slowdown in the economic growth momentum. Industrial production rose 0.5% from February, when it edged up 0.1%, data from the Office for National Statistics revealed. Economists had forecast stagnation for the month. The latest growth rate was the strongest since September last year, when production grew 0.6%.

EasyJet was the worst-performing stock in the FTSE 100, closing down 9.8%. The low-cost airline swung to a profit in the first half of its financial year as it flew more passengers and it benefited from lower fuel prices and favourable exchange rate movements, but it muddied its outlook after warning that disruption in April, mainly due to air traffic control strikes in France, had knocked about GBP25 million off its profit.

EasyJet said it made a pretax profit of GBP5 million in the six months to end-March, compared with a loss of GBP53 million a year earlier, as revenue rose to GBP1.77 billion from GBP1.70 billion.

Analysts at Nomura, Numis, Panmure Gordon and Cantor cut, or said they are likely to cut, their full-year forecasts for easyJet as a result of the disruption in France and its tougher outlook. Despite the cut to estimates, all five of the brokers reiterate their Buy ratings.

EasyJet said is expecting its fuel bill to be down between GBP60 million and GBP85 million on the year in the second half, and to be down between GBP95 million and GBP120 million for the year as a whole, but that benefit will be partly offset by adverse currency movements which are expected to have an impact of about GBP40 million in the second half and about GBP20 million in the year as a whole. It is also expecting second half cost per seat to increase, largely be driven by charges at regulated airports, particularly in Germany and Italy, increased crew costs and higher navigation charges.

Miners Fresnillo, up 1.7%, Randgold Resources, up 0.9%, and Antofagasta, up 1.2%, were in the small list of 10 stocks that ended higher in the FTSE 100, as the gold price rose to USD1,192.23.

Lloyds Banking Group ended up 0.5% as it continued its gradual return to full private ownership. A Stock Exchange filing showed that the UK taxpayer's stake has fallen yet again, to 19.93% from 20.95% previously. Following its GBP20 billion state rescue in the financial crisis of 2008-09, the government had owned as much as 43% of the banking group, which fell into trouble with its acquisition of UK rival HBOS.

In the FTSE 250, Greene King was up 3.2% at 830.00p after being upgraded by JP Morgan to Overweight from Neutral, with its price target lifted to 920p from 830p.

Regus was down 6.6%. JP Morgan Securities said that Estorn agreed to sell 30 million Regus shares at 245 pence each, raising gross proceeds of about GBP73.5 million for the vehicle controlled by the serviced office provider's founder Mark Dixon. Regus closed at 245.38p.

In the corporate calendar Wednesday, SABMiller and Vertu Motors release full year results, while Barratt Developments, G4S, Mondi, Galliford Try, Premier Oil and Renishaw issue interim management statements. Compass Group publishes half year results. Novae Group issues a first-quarter trading update, while Partnership Assurance issues a first-quarter interim management statement.

In the economic calendar, Chinese retail sales and French GDP are due at 0630 BST. German GDP and CPI is due at 0700 BST, while UK ILO unemploymenyt rate is at 0930 BST. Eurozone GDP is at 1000 BST, while the Bank of England releases its inflation report at 1030 BST. In the US, retail sales is due at 1330 BST, while EIA crude oil stocks change is at 1530 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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