By Rebekah Curtis
LONDON, May 14 (Reuters) - Britain's leading shares drifted
by midday on Wednesday, as miners powered on but investors in
financials fretted over the Bank of England's (BoE) intensifying
battle to shore up the UK economy while reining in inflation.
Banks fell as the BoE said in a report that British
inflation would shoot up over the next year and remain above the
2 percent target in two years if rates fall by half a percentage
point as markets expect.
"There are a lot of strains within the system," said Graham
Secker, UK equity strategist at Morgan Stanley.
"If the bank of England doesn't cut rates further from here,
the risk of the housing downturn and the consumer downturn is
more substantial."
British house prices are likely to fall 5 percent this year,
a Reuters poll of economists showed, and many believe they could
tumble twice that as inflationary pressures limit rate cut
hopes.
"Our view is that we're now entering a real economy problem
as opposed to a financial crisis type issue," Secker added.
"Potentially it is pretty serious."
By 1050 GMT the FTSE 100 <> was up 4.5 points, or 0.1
percent at 6,216.4 points, as the wider European stock market
edged up.
Banks led the decliners as the broader economic concerns
were compounded by the need for more rights issues in the
sector.
Bradford & Bingley <BB.L> shares sank 9.6 percent after the
lender unveiled a 300 million pound rights issue, just a month
after saying it had no plans to do so. []
Analysts said the news would add to pressure on rival
Alliance & Leicester (A&L) <ALLL.L> to raise capital. Barclays
<BARC.L> is also seen in need of boosting its capital position.
A&L, which tumbled on credit-related writedowns in the
previous session, dropped 3 percent, taking an extra hit as UBS,
Goldman Sachs, Citigroup and Dresdner all cut their price
targets on the stock.
Barclays lost 2.2 percent.
Across the Atlantic, U.S. stocks futures edged slightly
higher, with investors focusing on key inflation data and
corporate earnings from the housing and retail sectors.
MINERS DEFY GLOOM
Miners forged higher, however, with BHP Billiton <BLT.L>
jumping 3.5 percent after dealers cited talk that a Chinese
entity, possibly aluminium group Chinalco, was looking to buy a
stake. []
Separately, BHP Chief Executive Marius Kloppers told
broadcaster CNBC the company was not ruling out adding cash to
its all-share hostile offer for rival Rio Tinto <RIO.L>, which
added 1.8 percent. []
Kazakh mining group ENRC <ENRC.L> rose 6.5 percent to lead
the FTSE gainers after saying high commodity prices boosted
revenue in the first quarter, laying the foundation for an
expected robust performance in the full year.
Vedanta Resources <VED.L> added 3.9 percent, while Anglo
American <AAL.L> tacked on 2.2 percent.
British rail and bus firm FirstGroup <FGP.L>, which plunged
9 percent, led FTSE decliners after saying it expected to raise
230 million-240 million pounds ($447 million) in a placing of
43.7 million shares, a discount to the current price. Dresdner
cut its price target on the stock to 860 pence from 900 pence.
Supermarket group J. Sainsbury <SBRY.L> lost 2.8 percent
after reporting annual underlying pretax profit bang in line
with expectations, and after Numis downgraded the stock to
"reduce" from "hold."
(editing by Elizabeth Fullerton)
