LONDON MARKET CLOSE: Stocks Recover From New York Manufacturing Miss

LONDON (Alliance News) - London share prices ended flat Monday, having traded in a narrow range for most of the session but dropping sharply after a big miss by the New York Empire State Manufacturing index before recovering.

Business activity for New York manufacturers unexpectedly declined in the month of August, according to a report released by the Federal Reserve Bank of New York, with the index of regional manufacturing activity falling to a six-year low.

The New York Fed said its general business conditions index tumbled to a negative 14.9 in August from a positive 3.9 in July, with a negative reading indicating a contraction in manufacturing activity. The sharp drop came as a surprise to economists, who had expected the index to climb to a positive reading of 5.0.

"From an expected five-month high of 5.0, the manufacturing figure slumped onto the scene at -14.92, and for bored investors provided reason enough to abandon whatever long positions they were holdings," said Connor Campbell, financial analyst at Spreadex.

"Analysts, however, are slightly more split on how much credence the markets should give this data; whilst it does reflect that the stronger dollar might not be as victim-free as the Fed would like, the Empire State index has been lurching between positives and negatives for most of 2015, meaning it doesn't necessarily portend any great economic issues for the USA," the analyst added.

The FTSE 100 ended flat at 6,550.30, the FTSE 250 ended off 0.1% at 17,608.89, and the AIM All-Share closed up 0.1% at 750.81.

European stocks ended mixed, with the French CAC 40 up 0.6% and the German DAX 30 down 0.4%.

On Wall Street at the London close, the DJIA and the S&P 500 were both up 0.2%, while the Nasdaq Composite was up 0.3%.

Focus also was on Greece, after Germany said that writing down Greek debt would not help resolve the crisis and relief through longer maturities and lower interest rates are more viable.

German Chancellor Angela Merkel said on Sunday that there was some room for providing Greece with debt relief through longer maturities or lower interest rates, but excluded the option of a debt haircut, meaning a reduction in principal.

Merkel's comments were echoed by German Finance Ministry official Jens Spahn on Monday, who told dpa: "At most, there is limited room for improvement in terms of the maturities for loans or the amount of interest charged. A haircut is and will remain excluded under the eurozone contract."

The German chancellor also said she is confident that the International Monetary Fund will participate in the Greek bailout. The IMF has made debt relief a condition for joining Greece's third bailout in five years, saying that its current debt level is unsustainable.

Merkel wants to head off the threat of a major revolt in the ranks of her conservative-led political bloc when the German Parliament votes on Greece's rescue plan. The first test of the degree of opposition to the bailout among members of her Christian Democrats (CDU) and their Bavarian-based allies the Christian Social Union (CSU) is likely to come on Tuesday when CDU-CSU lawmakers meet to consider the package. Other eurozone parliaments are to vote on the bailout during the week, before Greece's EUR3.2 billion payment to the European Central Bank, due on Thursday.

On a quiet day for UK corporate news, building products company Wolseley closed up 2.2%, the best FTSE 100 performer, after Citigroup upgraded its stock to Buy from Neutral.

TUI Group ended up 1.6% after The Times reported the Anglo-German travel group is considering spinning off non-core assets with revenue of about EUR3 billion. The report said it understands that TUI Group could seek a separate listing for its non-mainstream operations, including brands such as hotelbeds.com, Crystal Ski Holidays and Hayes & Jarvis, while retaining a stake. It would retain core holiday brands such as Thomson and First Choice.

Miner and commodities trader Glencore was the biggest blue-chip faller, down 1.7%, having fallen for five consecutive sessions. The company reports half-year results on Wednesday.

Wm Morrison Supermarkets ended as one of the worst blue-chip performers, down 1.2%. The Telegraph reported Sunday that the supermarket is in advanced talks to sell its M Local convenience store chain to a group of industry executives backed by investment firm Greybull Capital.

The newspaper said it is understood that Greybull, which saved Monarch Airlines from bankruptcy last year, will provide tens of millions of pounds to fund the takeover and provide the stores with working capital.

"The strategy of asset sales amongst supermarkets makes sense, but it's a bit more clear-cut when it comes to something like Tesco selling its video-streaming service Blinkbox. Surely convenience stores should be part of Morrison's core business. The market trend is towards smaller more frequent shopping," said Jasper Lawler, market analyst at CMC Markets.

Shore Capital analysts Clive Black and Darren Shirley said the broker is "not uncomfortable" with Morrisons exploring solutions to problem areas of its business such as convenience stories, saying that the peak in convenience stores has passed.

Clarkson was one of the biggest fallers in the FTSE 250, down 7.1%. The shipping services company reported a fall in pretax profit in the first half, as an increase in revenue was more than offset by higher administrative expenses and costs connected to its acquisition of rival shipping broker RS Platou ASA, but it said it made a "solid" start to the year.

It said it made a GBP10.8 million pretax profit in the six months to the end of June, compared with GBP14.1 million in the corresponding period the prior year. Revenue increased to GBP145.3 million from GBP111.7 million, while administrative expenses were up to GBP127.8 million from GBP91.0 million.

Bovis Homes Group lifted its dividend, reported an 8.9% increase in pretax profit in the first half, and said it is on track to meet expected sales volumes in the year as a whole.

In a statement, the FTSE 250 housebuilder said it made a GBP53.8 million pretax profit in the six months to the end of June, compared with GBP49.4 million in the corresponding half the prior year, as revenue increased to GBP350.7 million from GBP322.1 million. Bovis Homes increased its interim dividend per share to 13.7 pence from 12.0p, and said it intends to increase the full-year dividend to 40p from 35p.

However, the company's shares closed down 3.9%, with its shares having traded at eight-year highs prior to the results.

In the economic calendar Tuesday, focus will be on UK inflation data at 0930 BST, after Bank of England policymaker Kristin Forbes said a delay in increasing interest rates could undermine the UK economic recovery.

"Maintaining interest rates at the current low levels during an expansion risks creating distortions. Therefore, interest rates will need to be increased well before inflation hits our 2% target," Forbes said, writing in an article in the Daily Telegraph. "Waiting too long would risk undermining the recovery, especially if interest rates then need to be increased faster than the gradual path which we expect."

The appropriate time to increase rates will depend critically on when there is more evidence that inflation is heading towards target as estimated, she added.

Also Tuesday are US housing starts and building permits at 1330 BST.

In the UK corporate calendar, there are half-year results from housebuilder Persimmon, oil and gas service company John Wood Group, and oil and gas company Cairn Energy. There also are interims expected from FTSE Smallcap constituents Diverse Income Trust, John Menzies, Mears Group and Chime Communications.

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

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