By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- U.K. stocks fell Tuesday, as a downgrade
for Aviva PLC and extended weakness in housing shares dragged the
FTSE 100 toward a second straight loss.
The pound, meanwhile, dropped against the U.S. dollar following
dovish comments from the head of the Bank of England, Mark
Carney.
The FTSE 100 index fell 0.3% to 6,782.62. It lost 0.4% on
Monday, with real estate issues hurt ahead of expected proposals
this week by the Bank of England aimed at paring the pace of growth
in the country's booming housing market.
Figures released Tuesday from the British Bankers' Association
indicated slowing in the market has already started. U.K. mortgage
lending in May grew by 1.2 billion pounds ($2.04 billion), compared
with April's GBP1.3 billion increase. Mortgage approvals totaled
41,757 in May, the lowest level since August.
Shares of home builder Barratt Developments PLC were down 1.2%,
Persimmon PLC lost 0.4% and Taylor Wimpey PLC gave up 1.1%.
Property developer British Land Co. picked up 0.5%, winning back a
portion of |Monday's 1.5% decline.
While policy makers at the Bank of England may "find it
necessary to resort to rate hikes to address housing risks, it, we
believe, might prove to be insufficient," said ICICI Bank economist
Nikhil Gupta in a Tuesday research report. "The government must
expand efforts to increase the housing supply, without which it
might prove extremely difficult to contain rising housing
prices."
Bank of England Gov. Carney addressed the issue of interest
rates on Tuesday. Subdued wage growth means there's "room for
additional spare capacity to be used up before we move [interest]
rates," he said in testimony to lawmakers.
The pound (GBPUSD) fell below the $1.70 level as Carney's
"dovish statements ... were a stark contrast to a week ago when he
suggested that rates in U.K. could rise as early as this year,"
wrote Boris Schlossberg, managing director of FX strategy at BK
Asset Management.
The cautious tone of policy makers indicates that monetary
authorities "remain far more concerned about stifling out the
nascent recovery than about controlling any inflationary or asset
bubble pressures," he said.
Back to stocks, shares of Aviva PLC were down slightly after the
insurer's rating was cut to neutral from buy at UBS.
"Aviva is no longer the compelling restructuring that a premium
valuation deserves," wrote UBS analyst James Shuck in a research
note Tuesday. With Aviva's "balance sheet now fixed and cash flow
repaired, investors should be looking to earnings surprises to
drive the shares higher from here."
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