By Carla Mozee, MarketWatch

Retail sales rise as prices decline

LONDON (MarketWatch) -- U.K. stocks fell by the most in two weeks Thursday, with a selloff in global markets overshadowing U.K. retail sales data that outstripped expectations.

The FTSE 100 benchmark fell 1.3% to 6,899.46, heading toward a third session of losses. Equities in the broader European market tumbled as well, following sharp declines overnight on Wall Street.

Only eight of the FTSE 100's components advanced, and none of the sectors tracked in London moved higher. The hardest hit stock was London Stock Exchange Group . Its shares slid 8.2% after the company's biggest shareholder, Borse Dubai, sold its entire 17.4% stake in the exchange operator.

Retail sales: A record decline in prices at stores helped bolster spending in the U.K. last month. The volume sold by British retailers rose 0.7% (http://www.marketwatch.com/story/record-fall-in-prices-boosts-uk-retail-sales-2015-03-26) in February from January, the Office for National Statistics said Thursday. The rate was better than the 0.4% increased expected in a FactSet poll of analysts. Sales on a year-over-year basis climbed 5.7%.

But "with the current trading climate the way it is, this good news couldn't make a dent in the FTSE's precipitous losses, with that record-breaking 7,000 level receding further into the background," said Connor Campbell, financial analyst at SpreadEx, in a note.

The pound (GBPUSD) had traded around $1.4964 ahead of the report, but eventually pulled back to $1.4901. It was still slightly higher than late Tuesday's level of $1.4883.

For sterling, "sentiment is checked by uncertainty surrounding the May election and ideas that a [Bank of England] rate hike is still more than a year away," wrote analysts at BBH Global Currency.

Pullback: The heavily weighted energy group posted the smallest loss among London-tracked sectors as oil prices rallied (http://www.marketwatch.com/story/oil-prices-surge-as-saudi-strikes-in-yemen-trigger-supply-worries-2015-03-26)(CLK5) after reports of Saudi Arabian airstrikes in Yemen raised concerns about supply disruptions. Oil major BP PLC slipped fractionally, BG Group PLC swung 0.8% lower, but energy-engineering firm Weir Group PLC rose 0.9%.

Along with the situation in Yemen, stock markets are being pulled lower by investors booking gains "following the recent central-bank-inspired rally," wrote Fawad Razaqzada, technical analyst at Forex.com. Funds from the European Central Bank's asset-purchase program have made their way into U.K. equities, pushing the FTSE 100 to record highs this year.

With highly accommodative monetary policy stances still intact at the European Central Bank and the U.S. Federal Reserve, "yield-seeking investors may still be looking for opportunities in the stock markets after every notable pullback. This trend is likely to remains in place for the foreseeable future, especially in Europe," Razaqzada said, adding that it may "be wise to wait for the dust to settle before also turning bullish in the short term."

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