FTSE down on rate fears; dollar rises

LONDON: UK stocks closed sharply down yesterday as concerns about more US interest rate hikes rattled investor confidence, but the world??™s biggest airports operator BAA rose after agreeing to a takeover bid.

Interest rate jitters ??“ which helped inspire a 5% fall on the FTSE in May ??“ were revived when US Federal Reserve chairman Ben Bernanke pledged to remain vigilant on inflation.

His comments were echoed by another Fed policymaker who said it was safer to err on the side of ???going a little too far??? in fighting inflation.

The FTSE 100 index closed down 92.3 points, or 1.6%, at 5,669.8 points

The index has tumbled from a five-year high of 6,137.1 points reached in April, falling as much as 10% from that peak during May to a trough of 5,510.5 points as US interest rate concerns combined with falling commodities prices to shake sentiment.

The market had stemmed those losses in late May but remains volatile.

Mining stocks such as Anglo American fell heavily, contributing about 18 points to FTSE weakness. Anglo American shed 5%, Xstrata lost 5.8% and BHP Billiton retreated 4.5%.

Oil heavyweights such as BP also weighed on the index, as oil prices joined lower metal prices in a commodity sell-off.

On the upside, BAA was one of just a handful of FTSE 100 gainers, up 2.2%.

Water company Severn Trent , which reported soaring profits, rose 3.9%.

Meanwhile mid-cap miners Vedanta and Lonmin and power company Drax are expected to gain promotion to the FTSE 100 in the quarterly index reshuffle at the expense of Cable & Wireless , Ladbrokes and Daily Mail , analysts said.

The dollar gained against the euro after Federal Reserve chairman Ben Bernanke gave a toughly-worded speech that caused market odds on a June US rate increase to jump.

In late European trading, the euro edged up to $1.2829 from 1.2903 late on Monday in New York.

The dollar stood at ??113.32 from 112.23 yen on Monday. ??“ Agencies