London shares down midmorning, off lows, July inflation falls below 2 pct

Leading shares remained weak midmorning but off lows as investors drew some comfort from July inflation news which showed the headline number fall back below the BoE target of 2 pct.

By 10.15 am, the FTSE 100 index was 14.7 points lower 6,204.3, with the FTSE 250 index was also recovering some of its earlier losses to trade 58.4 points lighter at 11,110.7.

Volume was fair, with 484 mln shares changing hands in 138,922 deals.

In economic news, inflation in the UK fell by the biggest amount in over five years during July, pushed down by falls in food prices and furniture, as well as utility and petrol costs and taking the key CPI rate below the Bank of England's target rate, official figures showed.

The Office for National Statistics said the annual CPI inflation rate slumped to 1.9 pct in July from 2.4 pct in June, well below analysts' forecasts for a decline to 2.2 pct and the steepest drop since May 2002.

This is the lowest CPI rate since March 2006 and is also the first time since that date that inflation has been below the 2.0 pct level that the Bank of England is charged with targeting.

The news is likely to diminish expectations for a further interest rate rise in the autumn, particularly in the light of the recent turmoil on financial markets.

Back among the blue chips, financials were weighing as ongoing credit concerns hit the banking and asset management sectors.

Inter-dealer broker Icap slipped 15 to 476, while Man Group slid 8 to 504.

Elsewhere, banks were lower after Credit Suisse advised its clients to stay away from the sector and backed up its concerns with a downgrade to Bradford & Bingley, off 12 pence at 417, and HBOS which eased 5 to 900.

Morrison also took a tumble, down 6 at 259, after issuing a warning of an e-coli outbreak in the Paisley area.

The outbreak was linked to sliced cold meat products at the delicatessen counters of its Lonend and Falside Road stores in Paisley, Scotland as the public health protection unit at NHS Greater Glasgow and Clyde started an investigating.

The move was precipitated after a 66-year-old woman died as a result of contracting the infection, while her husband remains seriously ill in hospital.

Sainsbury slipped 3 pence to 544-1/2, after it emerged the Qatari investment fund Delta Two which is targeting the UK supermarket group could reduce the debt proportion in its proposed 10.6 bln stg bid, according to a report in the Financial Times.

This move, said the newspaper, is an attempt to satisfy concerns that the supermarket group could withstand potential pressure on earnings from difficult trading conditions.

Philip Hampton, chairman of the UK's third-biggest supermarket chain, is expected to repeat demands for Qatari investment group Delta Two to restructure its offer proposal to include an additional 1 bln stg of equity when the two parties meet for a fifth time Wednesday, Thomson Financial News reported yesterday, citing city sources.

Sticking with M&A news, Royal Bank of Scotland bucked this morning's negative trend after a report in the Financial Times that the consortium led by the UK bank looking to buy ABN Amro has increased its stake in the Dutch bank to 3.25 pct. The move signals the group's determination to continue with its 71.1 bln eur bid for ABN.

There had been speculation that the consortium's takeover attempt could be undermined by tighter conditions in the credit markets, with concern centring on Fortis' debt-dependent contribution to the financing of the bid.

Lenders are currently demanding higher returns from all borrowers amid worries over a wave of defaults in the US sub-prime mortgage sector.

In broker driven news, BT Group rallied 3-1/4 to 311 after being upgraded to 'neutral' from 'underperform' at Credit Suisse, citing its cost cutting efforts and a slow take-up of full local loop unbundling in the UK.

Vodafone ticked up 1.3 to 159.6 as Germany's Federal Cartel Office said it had no objections to Vodafone, Telefonica's O2 and Deutsche Telekom's T-Mobile plans to set up a mobile television joint venture.

The companies plan to base the venture on the DVB-H standard mobile TV technology.

Elsewhere, Anglo American benefited after HSBC upped its rating to 'overweight' from 'neutral' and raised its price target to 3,350 pence, from 3,200 in the wake of the company's H1 results. The shares rose 31 to 2847.

In earnings news, InterContinental Hotels Group reversed opening falls after unveiling H1 earnings broadly in line with the markets' estimates and which highlighted that signings continue to run at record levels.

The company also raised its interim dividend by 12 pct to 5.7 pence from 5.1 pence. IHG's shares added 10 to 1,111.

Miners also reversed early losses as investors focused on firmer metal prices overnight and as early profit taking following yesterday's sharp gains petered out.

Antofagasta added 6 to 691, Vedanta took on 15 to 1,682 and Rio ticked up 8 to 3,228.

Turning to the second line, National Express Group gained 16 pence at 1,163, after winning the race for the UK's prestigious East Coast inter-city rail franchise, with a pledge to pay the government 1.4 bln stg over the life of the seven year deal.

National Express finance director Adam Walker said differences between the new contract and the previous deal, including a new timetable from 2010, 20 pct more capacity and potential boosts to demand such as the London 2012 Olympics, should help it avoid the problems that led to GNER's demise.

From www.hemscott.com