LONDON MARKETS: ABF, Banks Drag FTSE 100 Lower Despite Strong Data

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- The negative sentiment across global financial markets weighed on U.K. stocks on Tuesday, offsetting a strong reading on the country's services sector and a solid growth forecast from the European Commission.

The FTSE 100 index dropped 0.3% to close at 6,746.84, snapping a two-session winning streak.

Shares of RSA Insurance Group PLC led losers in London, off 6.3%, after the company said it expected its full-year weather-related losses to be "materially above planning assumptions" on the back of severe weather events in 2013.

Associated British Foods PLC lost 2.1% after the food and retail firm said it expected earnings per share in fiscal 2014 to be similar to 2013, as a decline in profit at the sugar division will offset improvement at the Primark clothing chain.

On a more upbeat note, shares of Marks and Spencer Group PLC gained 4.5% after the retailer reported a rise in first-half profit on a lower tax charge that helped outweigh the growing costs of the company's turnaround plan.

The broader U.K. market ignored an encouraging reading on the country's services sector. The Markit/CIPS U.K. Services PMI for October showed that a sharp rise in new business drove the biggest rise in activity for over 16 years. The index rose to 62.5 in October, versus September's 60.3, the largest increase since May 2007.

The pound (GBPUSD) jumped after the data, climbing to $1.6041 from late Monday's $1.5951.

Additionally, the European Commission more than doubled its growth forecast for the U.K. in 2013. In its autumn forecast, the European Union's executive arm said the economy would grow 1.3% in 2013, considerably higher than the 0.6% growth it projected in May.

The reports, however, weren't enough to lift the U.K. index out of red territory, as the benchmark tracked a broader negative sentiment across financial markets. European stocks were mostly down after the European Commission lowered the growth forecast for the euro zone for 2014 and raised the region's unemployment estimates.

Data from the British Retail Consortium on Tuesday showed retail sales rose only modestly in the U.K. in October, raising doubts about consumers' ability to support an economic recovery.

Banks were among major decliners, playing a part in dragging the FTSE 100 index lower. Shares of Barclays PLC (BCS) fell 2.4%, Royal Bank of Scotland Group PLC (RBS) dropped 1.7%, Lloyds Banking Group PLC (LYG) gave up 2.4% and sector heavyweight HSBC Holdings PLC (HBC) erased 0.7%.

Among other notable movers, Imperial Tobacco Group PLC (ITYBY) climbed 3.1% after the company reported a rise in full-year profit.

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