FTSE snaps three-day rally after miner weakness

By Alistair Smout

LONDON (Reuters) - The FTSE 100 fell on Friday after a three-day rally, as investors backed away from riskier sectors and U.S. GDP figures came in below expectations.

Material and energy stocks, which are sensitive to optimism over the global economic outlook, took 26 points off the FTSE 100, dragging the index into negative territory.

The index fell 16.17 points, or 0.3 percent, closing the week at 6,417.18, having bounced off of its intraday low at 6,399.37, but still up 2.2 percent on the week.

This has been the FTSE 100's best week since the first trading week of the year, and the sell-off was in thin volumes of just 73 percent of the 90-day average.

"We've rebounded quite strongly from the middle of the month, so we're just consolidating some pretty strong gains," Mike van Dulken, head of research at Accendo Markets, said.

"The 6,400 had two tests this morning and looks to be holding... but there's not really any additional risk-taking as we head into the weekend."

Mining stocks were the biggest weights on the index, down 2.4 percent and easing with copper prices after a strong run which sees the sector still up 1.9 percent on the week.

Kazakh miner ENRC topped the FTSE 100's loser board, falling 6.8 percent with traders attributing the move to a correction in price following an investigation launched by the Serious Fraud Office late in Thursday's trading session.

"With ENRC, there's just one chaotic piece of newsflow out after another," said Alastair McCaig, analyst at IG Index.

"We've seen a squeeze higher in commodity price, and the miners squeezed higher than most, so we're cooling off and having a pullback now."


Also weighing on sentiment was a disappointing GDP report from the United States, which grew 2.5 percent in contrast to a Reuters poll of economists who predicted a 3 percent expansion.

Equity markets have been supported by stimulus measures from world central banks, and an upside surprise in the report may have put the U.S. Federal Reserve's programme of asset purchases under pressure.

"While one could argue that this makes recent talk of the tapering of asset purchases from the Fed premature, and as such should be bullish for equity markets, one has to set the context in light of the gains seen this week in expectation of a good number," Michael Hewson, senior analyst at CMC Markets, said.

"Equity markets have had a pretty good week despite some questionable economic data and some profit taking was always likely even without this GDP miss."

Charts suggested that while the FTSE was set for near-term weakness, the longer term trend was more positive.

"The pullback from the peaks in March did not break through the 38.2 percent retracement level of the rally since November, so because of that, I am still a long-term bull on the FTSE," Fawad Razaqzada, technical analyst at GFT, said.

(Editing by Keiron Henderson)