LONDON MARKET CLOSE: Stocks Fall As Oil Prices Surge On Libya Worries

LONDON (Alliance News) - UK stocks reversed early gains Tuesday to close lower amid a wider European equity sell-off, as oil prices rose to their highest levels of the year due to fears of supply disruptions in Libya.

The FTSE 100 closed down 0.8% at 6,927.58, the FTSE 250 down 0.1% at 17,452.07, and the AIM All-Share down 0.2% at 751.68.

The FTSE 100 had opened aggressively, catching up with stock market gains in Europe and the US after the UK bank holiday on Monday, but buying soon was suppressed by a weak UK construction Purchasing Managers' Index reading and concerns ahead of the UK General Election on Thursday. The index fell heavily in late trade to end firmly in the red.

"Having failed to sustain early higher prices, European stocks erased all of Monday's gains on Tuesday as a spike in the euro and European bond yields unnerved a stock market rally that has been built on both being lower," said Jasper Lawler, analyst at CMC Markets.

"UK gilts yields jumped as prices fell over 1% to new 2015 lows, while German bunds and US treasuries moved in sync in a broad-based bond sell-off," the analyst added. The euro traded at USD1.1198 at the close of European equity markets.

In Europe, the CAC 40 in Paris ended down 2.1%, and the DAX 30 in Frankfurt fell 2.5%.

On Wall Street at the European close, the DJIA was trading down 0.5%, the S&P 500 was down 0.8% and the Nasdaq Composite down 1.3%.

Crude oil prices rose sharply to their highest level of 2015 as fears of supply disruptions in Libya were raised after a key port in the North African nation was shut down. Protesters forced the closure of the oil port of Zueitina, further cutting into already dwindling supplies from Libya.

Meanwhile, tensions between Iran and Saudi Arabia over the civil war in Yemen also are supporting crude oil prices. Brent oil reached a high of USD68.35 per barrel, its highest level since early December, while West Texas Intermediate rose to USD61.06 a barrel, its highest point since early-to-mid December.

Royal Dutch Shell 'A' closed up 2.2%, BP up 1.4%, and BG Group up 1.1%, all amongst the best performers in the FTSE 100. In the FTSE 250, Tullow Oil added 2.1%.

UK stocks and the pound were hit after the UK construction PMI showed growth at its slowest pace in nearly two years, amid sluggish output and new order growth, survey data from Markit Economics revealed. The Markit/CIPS PMI reading fell sharply to 54.2 from 57.8 in March. Economists had forecast a modest drop to 57.4. A PMI reading above 50 still suggests growth in construction activity.

"April's survey highlights another growth slowdown across the UK construction sector," said Tim Moore, senior economist at Markit. "The uncertain general election outcome appears to have put some grit in the wheels of decision making. Construction firms widely noted delays with clients' budget setting and a reduced propensity to commit to new projects."

The pound fell to a low of USD1.5088 following the reading but quickly recovered those losses. At the London close, it was quoted at USD1.5192.

The pound gained more ground against the dollar after the US trade deficit was reported to have widened by much more than expected. The US Commerce Department said the trade deficit yawned to USD51.4 billion in March from a revised USD35.9 billion in February. Economists had expected a significantly smaller deficit of about USD42.0 billion. The much wider-than-expected deficit in March was the largest US trade deficit since the USD60.2 billion gap seen in October of 2008.

European stocks, meanwhile, were under pressure from concerns over Greece's debt payments due to the International Monetary Fund. Athens faces two payments to the IMF in the coming days totalling almost EUR1 billion.

The IMF warned Greece's creditors in the eurozone that it will remove its support for the country unless European lenders write-off significant amounts of its sovereign debt, the Financial Times reported on Monday.

Poul Thomsen, the head of the European arm of the IMF, issued the warning to the country's eurozone creditors, raising the prospect that the fund may hold back its portion of the EUR7.2 billion tranche of bailout aid Greece needs to secure in order to avoid bankruptcy.

However, Reuters reported Tuesday that German Finance Minister Wolfgang Schäuble denied the FT report, saying that Greece has not fulfilled any of the prerequisites needed for such a measure.

HSBC Holdings will decide whether to move its headquarters from the UK by the end of 2015, management told reporters, as the group reported higher first-quarter pretax profit but said that its return on equity, a key measure of profitability watched by shareholders, had fallen.

Chief Executive Stuart Gulliver told reporters that a decision on its headquarters will be made within months. If the group decides to move away from London, it would require the consent of the board and shareholders and approval from various regulators.

HSBC shares closed down 3.2%, after having initially spiked higher on the profit announcement made during morning trading hours in London.

Aberdeen Asset Management said it is returning surplus capital to shareholders as net outflows in the first half of its financial year were "cushioned" by rallying markets. It said assets under management grew to GBP330.6 billion from GBP324.4 billion between September 30, 2014 and March 31, 2015. The group also said it intends to launch a share buyback of up to GBP100 million to return surplus capital to shareholders.

However, shares in the company ended down 2.8%, as Numis said the scale of the capital return may disappoint the market.

Indivior closed as the best performer in the FTSE 250, up 8.5%. The pharmaceutical company said its pretax profit in the first quarter fell due to weaker revenue and higher operating costs, but its RBP-7000 product has met the primary and secondary endpoints in its phase 3 trial for the treatment of schizophrenia.

The company said the top-line results for its RBP-7000 drug for the treatment of schizophrenia were positive, with clinically significant reductions in the symptoms of acute schizophrenia seen over an eight-week treatment period. Based on the success of the trial it expects to submit a new drug application to the US Food and Drug Administration for potential approval in 2017.

Red Emperor Resources, up 46%, led the AIM All-Share gainers after it said its partner on the Block SC55 project in the Palawin Basin offshore the Philippines has signed a contract for a drill ship to conduct work on the site. Otto Energy Ltd has signed the deal with Maersk Drilling to secure the Maersk Venturer ultra-deepwater drill ship, which will drill the Hawkeye-1 exploration well at the site.

In the economic calendar Wednesday, there is Chinese HSBC manufacturing PMI, before the London open, at 0245 BST. Markit services and composite PMIs are due from France at 0850 BST, Germany at 0855 BST, and the eurozone at 0900 BST. The UK Markit services PMI is at 0930 BST. Eurozone retail sales are at 1000 BST before US EIA crude oil stocks at 1530 BST.

In the UK corporate calendar, J Sainsbury reports full-year results, and Imperial Tobacco Group reports half-year results, as does software and services company Sage Group. Irish building materials company CRH issues an interim management statement, along with Carillion, Direct Line Group, Legal & General Group, JD Wetherspoon, National Express Group and GKN. Supergroup reports fourth-quarter results, and International Consolidated Airlines Group issues April traffic statistics. Prudential releases an interim management statement at 0915 BST, and GlaxoSmithKline reports first quarter results at 1200 BST.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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