LONDON MARKETS: FTSE 100 Ends Lower As Oil Sinks To 10-month Low

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Pound falls below $1.27

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U.K. stocks turned lower Tuesday, with energy stocks hit as oil prices were pulled into bear-market territory, while bank shares fell after the head of the Bank of England said he's not inclined to raise interest rates at this time.

The FTSE 100 fell 0.7% to close at 7,472.71, led by losses among commodity shares. The index had been higher, lifted when the pound dropped below $1.27 after BOE Gov. Mark Carney talked down prospects of an imminent rate hike (http://www.marketwatch.com/story/boe-chief-carney-too-early-to-lift-interest-rates-2017-06-20) .

But as the session wore on, oil prices became the dominant factor driving the market direction, with West Texas Intermediate oil futures and Brent crude futures sinking by about 3% (http://www.marketwatch.com/story/oil-hovers-at-seven-month-low-as-investors-weigh-up-supply-issues-2017-06-20). WTI prices were trading below $44 a barrel. That puts them down roughly 20% from their most recent high (http://www.marketwatch.com/story/oil-hovers-at-seven-month-low-as-investors-weigh-up-supply-issues-2017-06-20) and brings them into bear-market territory.

That dragged down shares of oil producer Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) by 2.3% and BP PLC (BP.LN) (BP.LN) shares lower 2.6%.

Oil and gas stocks have a hefty weighting of roughly 14% on the FTSE 100.

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Oil investors remained concerned about oversupply in the global oil market even after the Organization of the Petroleum Exporting Countries and other major oil producers in May agreed to extend production limits into the first quarter of 2018.

"Clearly with crude supply elevated and summer demand not keeping up, there is reason to believe we could be looking at a summer of discontent for oil bulls," said IG market analyst Joshua Mahony.

Weekly U.S. supply data from the American Petroleum Institute is due Tuesday after the close of European trade.

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"The assumption that extended OPEC supply cuts would underpin the oil price is unravelling by the day. We would expect U.S. crude to test $40 per barrel before any hopes of a sustainable recovery in oil prices," said London Capital Group senior analyst Jasper Lawler.

Bank stocks struggle: Bank shares fell as Carney advocated a lower-for-longer scenario in interest rates.

"From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment," said Carney in Tuesday's speech at Mansion House in London.

The bank's Monetary Policy Committee last week voted 5-3 to hold the key interest rate at a record low 0.25%, an unexpected tally as analysts had expected at the most one policy maker to vote for a rate hike.

With interest rates poised to remain lower, bank shares fell. Lloyds Banking Group PLC (LLOY.LN) (LLOY.LN) fell 2.5%, Standard Chartered PLC (STAN.LN) flipped down 1% and HSBC PLC (HSBA.LN) (HSBA.LN) shed 0.5%. Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) dropped 0.7%.

"We continue to judge that on balance the committee will be dissuaded from a rate rise by a continued run of lackluster data, particularly on the consumer front, between now and the August meeting. That 'on hold' view is strengthened knowing that the governor is minded to act cautiously," said Investec economist Victoria Clarke.

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Meanwhile, Barclays PLC (BCS) (BCS) ended down 1.9% after the U.K. Serious Fraud Office charged the bank and four former executives with conspiracy to commit fraud (http://www.marketwatch.com/story/barclays-4-former-top-execs-charged-with-fraud-2017-06-20) in a case related to fundraising in Qatar during the financial crisis.

(http://www.marketwatch.com/story/this-is-what-elite-fund-managers-are-watching-closely-and-its-not-trump-or-brexit-2017-06-19)Elsewhere on the FTSE 100, Wolseley PLC (WOS.LN) said quarterly sales rose (http://www.marketwatch.com/story/wolseley-quarterly-sales-trading-profit-rise-2017-06-20)and that it was on track to meet full-year expectations. Shares of the plumbing and building supplies company ended marginally lower.

(END) Dow Jones Newswires

June 20, 2017 12:20 ET (16:20 GMT)