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FTSE drops gains on new Ukraine fears

Friday, August 15 17:22:52

Britain's top equity index ended the day flat today, erasing earlier gains after news broke of a Ukrainian attack on a Russian convoy, although it held up better than other European share markets.

Major European indexes had traded in positive territory for most of Friday on expectations for continued ultra-loose monetary policy after disappointing U.S. and euro zone data.

But news that Ukrainian artillery had destroyed a "significant" part of a Russian armoured column that had crossed into Ukraine overnight, according to Ukrainian President Petro Poroshenko, rattled investors in late trade. The German DAX index was hit particularly hard - down 1.7 percent.

The FTSE 100 closed flat at 6,689.08 points.

"The outperformance is a combination of the fact that (other European markets) are fundamentally more exposed in terms of trade to Russia and that technically they were performing better earlier in the day, so they were quicker to unwind," said Jasper Lawler, analyst at CMC Markets.

The FTSE ended the week up 1.8 percent, boosted by comments from the Bank of England on Wednesday, which led investors to push back expectations for an interest rate increase, and a general rebound in global equity markets after two weeks of steep declines.

Official data on Friday showed Britain had kept up its strong growth in the second quarter, with its yearly pace of expansion revised up to 3.2 percent, but the Bank of England has said it is paying close attention to wage prospects and slashed its forecasts for wage growth on Wednesday.

As a result, money market investors have push back expectations for a UK interest rate rise until the first quarter of next year at the earliest.

Traders had welcomed conciliatory comments from Russian President Vladimir Putin on Thursday, but tensions between Ukraine and Russia remained high, keeping investors cautious about the market's near-term prospects.

"Short-term I'd probably be 'short' the FTSE because the issues in the Ukraine could influence this market and I think they are going to keep it on a knife's edge," Mark Priest, senior trader at ETX Capital, said.

Another London-based trader said that some clients were already taking profit on UK stocks after the past week's gains and that he also expected a slight correction in the short term.

The FTSE is still down 2 percent since late July, dragged down by tension in Ukraine and the Middle East, as well as concerns about a tightening of U.S. monetary policy.

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