UK stocks: Blue chip index down 1.4%

Britain's top shares dropped back on Wednesday,led by weakness in commodity issues.

UK stocks closing: Britain’s top shares dropped back on Wednesday,led by weakness in commodity issues as investors nervously awaited the outcome of a U.S. Federal Reserve meeting with expectations for further economic stimulus seen as already discounted.

The FTSE 100 closed down 75.30 points,or 1.4 percent at 5,288.41,retreating after a 2.0 percent bounce on Tuesday to end near session lows back below the 5,300 level.

Technical analysis of the FTSE 100 showed it is currently in a comfort zone,said Bill McNamara of Charles Stanley in a note,with the UK index firmly within a flag pattern that has defined its price action for the last six weeks.

Ironically,it is when a trading range becomes a ‘comfort zone’ that a break-out starts to become more likely. Critical support is in the region of 5,130 while resistance is at 5,450 or so,McNamara added.

Specialty miners were the biggest FTSE 100 fallers,with Chilean copper miner Antofagasta the worst off,down 6.7 percent,while Rio Tinto shed 4.2 percent as the copper price dropped to its lowest level since November 2010.

Integrated oils also suffered,led by BP down 2.5 percent,on worries that the Fed’s expected stimulus measures will not be enough to prevent global economic growth dipping back once again.

Investors expected the U.S. central bank,which concludes a two-day policy meeting on Wednesday,to push down already low long-term interest rates by tilting its portfolio towards longer maturities in a move known as ‘Operation Twist’,rather than announce more quantitative easing.

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U.S. blue chips were 0.3 percent lower by London’s close as investors awaited the Fed statement,due at 1915 GMT.

If anything you would have thought that (equity markets) would be quite receptive to some more stimulus from the Fed in a very controlled way,and this is exactly what Operation Twist is,said Mike Lenhoff,chief strategist at Brewin Dolphin Securities.

Because it doesn’t require the Fed to increase the size of its balance sheet – it just involves a restructuring of the balance sheet – so I would have thought that that’s to be welcomed,particularly if it helps the housing market,and if it helps bring back some confidence in some way shape or form.

Banks were lower as a sector,reflecting falls by global lender HSBC ,off 1.7 percent,and emerging markets-focused Standard Chartered ,down 1.5 percent.

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But the two part state-owned British lenders bucked the sector trend,squeezed higher by their low liquidity and short-selling bias,with Lloyds Banking Group ,the top blue chip riser up 5.6 percent,and Royal Bank of Scotland ahead 1.3 percent.

Among individual blue chips,Land Securities firmed 0.9 percent after BoA Merrill Lynch upgraded its rating for the real estate firm to buy from neutral,highlighting a value gap with its peer British Land ,down 1.2 percent.

Inmarsat fell 2.6 percent,with traders citing the impact of two broker downgrades for the satellites operator,partly on valuation grounds,and partly due to concerns over progress at its U.S. partner LightSquared.

And ex-dividend factors took 1.5 points off the FTSE 100,with Aggreko ,Aviva ,International Power and Petrofac all losing their payout attractions.