* Vodafone weakness crimps early stress test optimism
* Improving capital base sends Old Mutual, insurers higher
* BoE holds rates, ups scale of quantitative easing
By Simon Falush
LONDON, May 7 (Reuters) - Weakness in stocks of telecoms
heavyweight Vodafone <VOD.L> extinguished early gains from
optimism on the outcome of U.S. bank "stress tests" on banks,
leaving Britain's FTSE 100 <> flat at Thursday's close.
Stocks were sharply higher after the Bank of England kept
rates on hold and expanded quantitative easing but retreated in
volatile afternoon trade, tracking weakness in U.S. stocks
following downgrades in the telecom sector.
The blue-chip index ended 2.19 points higher at 4,4398.68
after touching a high of 4,520.82 for the session. It is in
positive ground for its third straight day and earlier moved
into the black for the year.
"I'd say this afternoon it's just a matter of everything
being overbought; we're just seeing a bit of profit taking,"
said Mic Mills, a trader at spread betting firm ETX Capital.
Trade was heavy with 163 percent of the average volume of
the last 90 trading days transacted.
The BoE increased its quantitative easing programme by 50
billion pounds to 125 billion and the European Central Bank cut
interest rates by 25 basis points to 1.0 percent as expected.
Sterling fell broadly, retreating from a four-month high
against the dollar <GBP=> following the move from the BoE.
Banks were stronger in early trade after U.S. Treasury
Secretary Timothy Geithner said none of the 19 banks being
examined under stress tests is at risk of insolvency. The
results of the U.S. bank stress tests are set to be released
later on Thursday.
"The stress test has already been all priced in and I think
everything just got a little heated this morning," Mills said.
Barclays <BARC.L> fell 4.3 percent, retreating from gains
early on after it said its first-quarter profit rose 15 percent
from a year ago. []
Lloyds Banking Group <LLOY.L>, sank 14.3 percent -- the
biggest blue-chip faller -- after the part-nationalised lender
said impairment charges were rising significantly as it
reiterated it would report a loss before tax for 2009.
[]
Royal Bank of Scotland <RBS.L> slid 9 percent but the more
internationally focused HSBC <HSBA.L> rose 3 percent and
Standard Chartered <STAN.L> added 0.2 percent.
VODAFONE DRAGS
Vodafone <VOD.L> was the biggest drag on the index, down 4.9
percent after JP Morgan downgraded shares in the big U.S. mobile
firms AT&T <T.N> and Verizon <VZ.N> to "neutral" from
"overweight" on "secular challenges within the wireline and
wireless segments".
Elsewhere in the financial sector, Old Mutual <OML.L> added
4.3 percent after the life insurer said its pro-forma Financial
Groups Directive (FGD) surplus stood at 0.9 billion pounds at
the end of March, up from 0.7 billion at the end of December.
Other insurers were also buoyed by French peer Axa <AXAF.PA>
whose first quarter results came in better than feared. Legal &
General <LGEN.L> added 9.9 percent, while Prudential <PRU.L> and
Aviva <AV.L> strengthened 3.7 percent and 0.7 percent
respectively.
Heavyweight energy stocks were the largest boon to the
large-cap index, bolstered by crude prices briefly rising above
$58 per barrel <CLc1>.
BP <BP.L>, Royal Dutch Shell <RDSa.L> and BG Group <BG.L>,
added 0.2 percent to 2 percent.
Unilever <ULVR.L> surged 9.9 percent after the consumer
goods giant reported a 4.8 percent rise in first-quarter
underlying sales and said it planned to step up innovation and
brand support from the second quarter.
(Additional reporting by Tricia Wright, Editing by David
Cowell)
