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LONDON (AFX) - UK blue chips continued to pare losses in afternoon trade, but still closed in the red, as Wall Street picked up momentum following reports Iran is willing to start serious talks with the UN over its nuclear enrichment programme, dealers said.
The FTSE 100 index closed 12.6 points weaker at 5,902.6, above the session low of 5,878.4 but having fallen from an opening peak of 5,939.2.
The FTSE mid-cap index also ended in the red, but the FTSE Small Cap index managed to hold on to gains.
Volumes were relatively light, with only 1.84 bln shares changing hands in 289,529 deals.
Meanwhile, Wall Street recovered yesterday's losses, with the Dow Jones Industrial Average 30.30 points higher at 11,375.10 at the UK close, while the Nasdaq Composite climbed up 13.66 points at 2,161.41 and the S&P 500 index rose 4.45 points at 1,301.95.
US stocks initially opened in the red amid reports that Iran had filed its formal answer to the United Nations' offer to provide incentives to encourage Iran to put a stop to its nuclear enrichment programme. Details of the response were not reported but the Middle Eastern nation was believed to have said it is ready to start talks with the UN members plus Germany, although yesterday the oil exporter said it would reject the call by the UN for it to stop its nuclear research programme.
In London, BAE Systems was the main casualty, losing 9-1/4 pence at 356-1/4, after the Financial Times disclosed that the defence group was among the top donors to candidates in US elections. BAE's negative share performance was exacerbated by profit-taking following last week's share price gains.
Also weighing on the downside were oil heavyweights, which were out of favour as crude oil prices retreated after an initial spike in response to concerns over the Iran-UN situation.
Royal Dutch Shell closed 20 pence lower at 1,947 and BP was down 3 pence at 616.
Elsewhere, Yell Group dipped 8 pence at 528-1/2 after Joe Walsh, president and CEO of Yellow Book USA, netted over 5 mln stg after selling 1,000,000 shares in the UK-based phone book company, at 5.35 stg each.
Old Mutual also closed in negative terrain, 2 pence lighter at 160-3/4, as equity market falls and a weak rand impacted the South African-based asset management group.
Fund manager Schroders also suffered with the weak market, down 13 pence at 925.
And downbeat broker comment weighed on power generation firm Drax, which slipped 18 pence at 902, under pressure after Dresdner Kleinwort repeated its 'hold' recommendation and advised clients to switch into Scottish & Southern Energy.
Meanwhile, Kingfisher continued to suffer from a Dresdner Kleinwort downgrade to 'hold' from 'add' yesterday, slipping 4 pence at 230-1/2 today, while AB Foods was still smarting from Cazenove's recommendation cut to 'in-line' from 'outperform' on Monday, 12-1/2 lower at 843.
Among those reporting, Intercontinental Hotels fell back 6 pence at 898 as the group's robust interim results gave investors an excuse to take profits following recent strength.
The hotels group reported continuing operating profit of 107 mln stg for the six months to June 30, up from 82 mln stg last time and ahead of analysts' expectations of 96-104 mln.
In reaction, Merrill Lynch reiterated its 'buy' recommendation and 1,030 pence target, noting that the group made strong progress over the half with both EBIT and pretax profits coming in ahead of its forecasts.
Meanwhile, Persimmon also ran into some profit-taking, losing 16 pence at 1,260 after the morning's strong performance, when the housebuilder reported record interim pretax profits as it confirmed its integration of Westbury had completed ahead of schedule.
The group said pretax profits for the first half were up 16 pct to 271.5 mln stg with a raised dividend of 64.4 pence, prompting ABN Amro and Merrill Lynch to both reiterate their 'buy' recommendations.
The volatile trading session saw mining issues finally end the day on positive ground after see-sawing for much of the session as investors battled between lower commodity prices and yesterday's sector consolidation hopes.
Anglo American added 15 pence at 2,470, while Antofagasta climbed up 2-1/4 pence at 438 and BHP Billiton rose 6 pence at 1,056 ahead of the group's full-year results due tomorrow.
Among other blue chip gainers, takeover talk supported the financial sector, with Lloyds TSB up a penny at 523 amid rekindled age-old rumours that Bank of America is ready to pounce.
Traders were dubious, however, with phrases like 'old chestnut' and 'same old, same old' accompanying the chatter.
The story, however, breathed some life into Royal Bank of Scotland shares, up 8 pence at 1,772.
And property issues also held firm amid REIT conversion hopes as the sector reporting season continues tomorrow with interims from Slough Estates -- British Land gained 17 pence at 1,362, Land Securities added 7 pence at 1,922, and Liberty International firmed 5 pence at 1,120.
Slough Estates shares, however, lost 3-1/2 pence at 660-1/2.
Meanwhile, Diageo rose 5 pence at 956 after UBS upped its price target on the drinks giant to 1,130 pence from 1,050p ahead of full-year results due on August 31 and reiterated its 'buy' advice.
On the second-line, JKX Oil & Gas was in fine fettle, up 8 pence at 306, after the explorer announced a one-year gas sales agreement with Royal Dutch Shell in Ukraine.
In response, KBC Peel Hunt upgraded its recommendation to 'buy' from 'hold'.
Positive broker comment also lifted Taylor Nelson Sofres, 4-3/4 pence higher at 180, after ABN Amro initiated the market research group with a 'buy' rating and a target price of 210 pence per share.
Furthermore, the Financial Times reported there was vague talk WPP could be interested in bidding for the group.
And Tullow Oil benefited from an upbeat drilling update from its Mputa-1 discovery well in Uganda, which it jointly owns with Hardman Resources, which operates the well.
The update prompted KBC Peel Hunt to reiterate its 'buy' recommendations on both companies' stocks. Tullow added 3-1/4 pence at 391, while AIM-listed Hardman added 4-1/2 pence at 65.
On the downside, Bodycote International remained the main mid-cap casualty, down 11-1/2 pence to 237 after in-line results from the engineering group.
In response, Numis cut its rating to 'hold' from 'buy' on valuation grounds following a strong run in the share price ahead of the numbers.
And finally, Gondola slipped back 5-3/4 pence at 320 after reports that its approach to acquire the Giraffe brand had been rebuffed. newsdesk@afxnews.com hco/slm COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited
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