Oil companies still holding FTSE back

A string of stocks going ex-dividend were holding the London market back today - despite signs interest rates may not have to rise by as much as feared.

BP, Shell, Aviva and Lloyds TSB all lost ground after investors became unable to qualify for dividends, leaving the FTSE 100 Index 38.9 points adrift at 4312.0 by lunchtime.

New York was not expected to offer much support, with the Dow Jones Industrial Average tipped to open lower following last night’s climb of 130 points.

Economic data showed that UK unemployment increased by 27,000 despite another fall in the number of people claiming jobless benefits.

Encouragingly, the Bank of England indicated interest rates may now be close to their peak after its latest quarterly economic forecast put inflation on track to meet its 2% target.

Oil giants BP and Shell were both major contributors to the Footsie’s losses after going ex-dividend and seeing the price of oil retreat from yesterday’s record high.

Shell was the heaviest top flight faller in the sector, losing more than 2% or 10.5p to 391p, while rival BP weakened 10p to 497p.

In banking and insurance, Aviva, Lloyds TSB and HBOS led the Footsie down, with Aviva dropping 3% or 18p to 507p, Lloyds TSB losing 11.75p to 401.5p and HBOS slipping 15p to 664p.

Airports operator BAA was also off – falling 2.5p to 548p – after saying the number of passengers travelling on long-haul routes had returned to pre-September 11 levels for the first time.

However, pest control firm Rentokil Initial was at the top of the Footsie risers as fresh talk of a potential break-up of the troubled group circulated. Shares rose more than 2% or 3.5p to 151.25p.

Outside the top flight, engineering group Jarvis fell more than 6% after it said the completion of its 2004 audit would result in a £9m (€13.4m) increase in pre-tax losses. Shares fell 2.5p to 38.25p.

Home furnishings retailer Homestyle slipped more than 2% as it revealed it is to sell its Bensons Beds business after annual losses widened to £107.8m (€161m) from £9.8m (€14.6m). Shares in the group dipped 2p to 106.5p.

Engineering group Balfour Beatty retreated 4.75p to 261p after its chief executive stepped down and posting a 33% rise in underlying interim pre-tax profits to £68m (€101.6m).

In contrast, soft drinks group Nichols was upbeat after announcing plans to offload its food manufacturing arm to focus on selling products such as Vimto and Sunkist. Shares lifted 2p to 143p.