LONDON MARKETS: FTSE 100 Bruised As PMI Raises Calls For Rate Hike

By Sara Sjolin, MarketWatch

LONDON (MarketWatch)--U.K.'s benchmark stock index moved lower on Wednesday, after better-than-expected data for the services sector triggered speculation that a rate hike could come from the Bank of England as soon as this year.

The FTSE 100 index fell 0.3% to close at 6,818.63, for a second straight day in red.

Pulling the index lower, shares of Vodafone Group PLC (VOD) lost 1.2% after the U.K. telecoms regulator Ofcom revealed proposals to cut what mobile operators can charge consumers to make calls. The new charge control would apply to all operators and bring down calling costs to less than half a penny a minute by April 2017.

Barclays PLC (BCS) gave up 0.5% after HSBC cut the bank to neutral from overweight. The analysts said Barclays's trading-revenue outlook "is much worse than anticipated".

SABMiller PLC fell 1.2% after Morgan Stanley cut the brewer to equal weight from overweight following the stock's recent outperformance, according to Dow Jones Newswires.

Tesco PLC (TSCDF) dropped 1.3% after the supermarkets chain posted a 3.7% drop in same-store sales, excluding petrol, in the first quarter.

The London benchmark started the day in negative territory and nudged lower after a strong reading on the U.K. services sector sparked speculation that a BOE rate hike could come sooner than expected. The CIPS/Markit services purchasing managers index for May fell to 58.6, down from 58.7 in April, but beat analysts' forecast of a 58.2 print. Meanwhile, employment growth in the U.K. services industry strengthened to the fastest rate in 17 years.

Christian Schulz, senior economist at Berenberg, said in a note that even though U.K. services and construction PMIs have fallen from recent peaks, the "speed of the economic recovery remains very impressive."

"Record-low interest rates are no longer necessary, in our view," he said. "The latest data support our call that the first hike will come in November 2014."

The BOE has previously signaled that its first rate rise will come in the spring of 2015.

The pound (GBPUSD) pared losses after the data and traded at $1.6746 at the time of the U.K. close, up from as low as $1.6699 ahead of the report.

In other movers in London, shares of Sports Direct International PLC climbed 3.6% after Exane BNP Paribas added the retailer to its key-ideas list.

More must-reads from MarketWatch:

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