Weak miners hit UK stocks as stimulus boost fades

LONDON -

Falls in mining stocks dragged down British shares on Monday as investors focussed on a gloomy economic outlook, turning back some of the boost given to markets by central bank moves in Europe and the United States.

Germany's Ifo index of business sentiment bucked expectations of a rise to fall for the fifth month running, the latest in a run of poor data from major economies.

That turned investors' minds back to the longer-term problems both Europe and the U.S. have in generating growth while trying to get public debt back under control.

There was also more scepticism that a third round of quantitative easing by the U.S. Federal Reserve would be and whether the European Central Bank's bold plan to buy euro zone bonds could put an end to three years of debt crisis.

"There is a deep discussion, as always, about how effective these stimulus measures will be, and we'll just have to wait for the next few data releases to get some feel for that," said Darren Winder, head of strategy for Oriel Securities.

"I think there is a general belief that the outlook is improving as a result of these measures, but we need to see some hard evidence of that," Winder added.

Miners <.FTNMX1770> knocked 10 points overall off the FTSE 100 index, with Anglo American a big casualty, down 3.1 percent as BofA Merrill Lynch cut its rating for the firm to "neutral" from "buy" with a reduced target price of 2,400 pence.

"We think Anglo shares present deep value. However, with ongoing union related labour unrest in South Africa, which particularly impacts the group's key platinum division, we do not see shares outperforming the broader sector or the market near term," Merrill said in a note.

ENRC was also a big faller down 4.6 percent with the Sunday Telegraph reporting that the Kazakh mining conglomerate has shelved plans to split the company in two as a result of market conditions and lower production volumes.

Overall the mining sector has fallen around 5 percent since the release, late last week, of dull manufacturing data out of China, the world's top consumer of metals.

JPMorgan Chase recommended pocketing recent gains in the sector because the impact of stalling global - and particularly Chinese - growth momentum was offsetting the modest boost generating by a new U.S. Federal Reserve asset buying programme.

The bank said it would avoid Anglo American and Kazakhmys , with its top sector picks being Rio Tinto , Antofagasta, Fresnillo and BHP Billiton .

At 1045 GMT, the FTSE 100 <.FTSE> was down 36.45 points, or 0.6 percent at 5,816.17 having notched up a loss of 1.1 percent last week after two consecutive weeks of gains.

The blue chip index held above the psychologically-important 5,800 level, although key technical levels were seen as the more important support levels.

"This price action (last week's falls) need not necessarily be fatal to the bull case but to maintain its current trend it is essential that it holds above 5,760 or so," Charles Stanley technical analyst Bill McNamara said in a note.

BANKS BOWED

Falls by banks <.FTNMX8530> also dragged on the blue chips, with the sector reversing more of a summer rally for a sector that is heavily exposed to euro zone government bonds.

The banking sector has gained over 18 percent since late July when ECB president Mario Draghi promised in a speech to do everything in his mandate to protect the euro.

The euro zone's troubles were back in focus this week with Spain, under pressure to submit to a rescue programme, due to present its 2013 budget on Thursday, and with talks due to restart between Greece and the EU/IMF/ECB troika on the progress of austerity measures linked to a rescue package.

"We are in an almost permanent state of anxiety with the European issues .. I think the ECB's (bond-buying) actions have definitely improved the outlook but there are still plenty of issues for investors to be looking at," said Oriel's Winder.

As investors' risk appetite took a knock, stocks seen as less dependent on the economic cycle found support, with drugmakers the biggest risers led by GlaxoSmithKline up 0.6 percent and AstraZeneca ahead 0.5 percent.

(Reporting by Jon Hopkins; editing by Patrick Graham)