FTSE loses ground

British investors were given a jolt today after new research showed signs of a stalling in the recovery of the manufacturing sector.

A mixed bag of economic news also revealed homeowners repaid £418m (€474m) more than was advanced in July as the credit crunch continued to restrict new lending by banks and building societies.

Additional figures from the Bank showed a record £8.4bn (€9.5bn) fall in business lending over the month.

The Footsie, which was close to its opening mark ahead of the data, was down 57 points to 4851.2 by lunchtime as analysts warned the UK's economic recovery was likely to be "patchy and fitful".

The mood earlier in the session was helped by a modest recovery for Asian markets in time for London's return following the holiday weekend.

This was undone by the Chartered Institute of Purchasing & Supply's measure of the manufacturing sector, which posted 49.7 in August, below the no-change mark of 50 and well down on the City's forecast for a figure of near to 52.

The latest economic wobble caused miners to fall, while RSA Insurance was 4% lower following a newspaper report that it may turn to investors for a £1bn (€1.13bn) fundraising. Shares retreated 5.4p to 125.2p.

AstraZeneca led the London risers board for much of the session, up 38.5p to 2878.5p after it said at the weekend that trials of a new blood thinning pill had produced a 16% drop in heart attack and stroke deaths among patients.

Fellow drugs firm GlaxoSmithKline was also higher, up 4p to 1207p, while Shire added 4p to 1027p.

Other traditionally defensive stocks were popular amid the economic uncertainty, with BAE Systems up 4.4p at 316.6p, cleaning products firm Reckitt Benckiser ahead 40p at 2893p and British American Tobacco 27p higher at 1901p.

Traders were keeping an eye on the housebuilding sector after Taylor Wimpey and Barratt Developments fell heavily on the back of the lending figures, despite recent signs of improved confidence in the housing market.

Taylor Wimpey shares dropped 6% or 3.4p to 48.8p and Barratt slipped 11.9p to 233.9p.

National Express was one of the biggest risers in the FTSE 250 amid reports that Stagecoach is considering a bid for the firm, which recently rejected an attempt to take it private by a CVC-led consortium.

Shares rose 5.3p to 403.7p, while rival Go-Ahead added 7p to 1362p ahead of results later this week.

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