LONDON MARKETS: FTSE 100 Closes Lower As Banks Suffer From Flynn, Tax Reform Uncertainty

By Carla Mozee and Sara Sjolin, MarketWatch Features Dow Jones Newswires

U.K. manufacturing activity at more than 4-year high

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Banks yanked U.K. stocks lower on Friday, shaken by concerns over a delay to tax reforms in the U.S. and news that former U.S. national security adviser will testify about President Donald Trump.

What markets are doing: The FTSE 100 index fell 0.4% to close at 7,300.49, deepening its weekly loss to 1.5%.

The pound traded at $1.3501, down from $1.3529 late Thursday in New York. It fell below the $1.3500 level after the release of U.K. manufacturing data. Against the euro, sterling bought EUR1.1341, down from EUR1.1366.

What's moving markets: U.K. and European equities extended losses in the afternoon after news former national-security adviser, Michael Flynn, pleaded guilty Friday to lying to the FBI and reached a deal with the special counsel investigating Russia's alleged interference in the U.S. election.

Flynn has promised full cooperation with Special Counsel Robert Mueller (http://www.marketwatch.com/story/former-trump-national-security-adviser-michael-flynn-pleads-guilty-to-lying-to-fbi-2017-12-01)and is said to be prepared to testify that Trump during the election campaign directed him to make contacts with the Russians, according to an ABC report.

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"This is huge news from a story that may well have died away previously, but is now back with a vengeance," said James Hughes, chief market analyst at AxiTrader, in a note.

"The question is now how much damage this can do to Trump and just what else will Flynn testify when under oath. This news comes just as the president was getting traction on his tax bill so the timing of this could well be damaging not only for the president himself but for the future of that tax bill," he added.

Stocks in the U.K. were already lower earlier in the day after the U.S. Senate late Thursday suspended a vote on a tax bill as lawmakers continued to debate a number issues related to cutting rates for individuals and corporations.

Read:Here's what's next for the Senate's tax bill (http://www.marketwatch.com/story/heres-whats-next-for-the-senates-tax-bill-2017-11-30)

"Passing tax reform was never going to be a walk in the park," said Richard Perry, market analyst at Hantec Markets, in a note. "If the bill is delayed further there could be a bit of a wobble, whilst if it even gets voted down, there would likely to be a significant correction and reduction in risk sentiment."

The prospect of lower U.S. corporate taxes under the Trump administration has aided bank stocks world-wide at times over the past year and the tax wobbles send those shares lower in Friday's trade.

Stock movers: In the banking group, Barclays (BCS)(BCS) fell 2.1%, Lloyds Banking Group (LLOY.LN)(LLOY.LN) dropped 1.9% and Standard Chartered (STAN.LN) gave up 2.1%.

As well, shares of Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) fell 2.4% after the company said it will close 259 branches and cut 680 jobs to reduce costs and spur more customers into using mobile and online services.

Among gainers, BP PLC (BP.LN) and Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) gained 0.6% and 0.2%, respectively, tracking gains for oil prices after major oil producers on Thursday agreed to extend production curbs through 2018. (http://www.marketwatch.com/story/oil-prices-build-on-gains-after-opec-agreement-to-extend-production-curbs-2017-12-01)

Economic data: IHS Markit/CIPS said its U.K. manufacturing PMI for November was 58.2 (http://www.marketwatch.com/story/uk-manufacturing-pmi-picks-up-in-november-2017-12-01), and that was better than the FactSet estimate of 56.5.

"New orders, employment and growth all increased, and importantly, it appears that U.K. manufacturers have now overcome the effects of the pound's depreciation following Brexit," said Hamish Muress, currency analyst at OFX, in a note.

(END) Dow Jones Newswires

December 01, 2017 12:58 ET (17:58 GMT)