LONDON MARKETS: Tobacco Firms Weigh On FTSE 100; Vodafone Rallies

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- U.K.'s benchmark stock index dropped from a more than five-year high on Wednesday, as tobacco firms declined after reports of a branding ban in the U.K., while Vodafone Group PLC rallied on Verizon Communications Inc. reports.

The FTSE 100 index lost 0.1% to close at 6,427.64, after rising to the highest level since January 2008 on Tuesday.

Shares of Imperial Tobacco Group PLC (ITYBY) lost 2.4%, on the back of an article in the Guardian saying the U.K. government will introduce plain-packaging laws for cigarette packets later this year.

"The news is likely to be an immediate negative for IMT, but we think much of the impact is in the price. Either way, this feels like 'high noon,' and we expect a strong legal challenge," Martin Deboo, analyst at Investec Securities, said in a note.

Shares of British American Tobacco Group PLC (BTI) lost 1.3%. See: U.K. plain-packaging support bruises tobacco firms

Banks also added pressure, as investors sold more risk-sensitive assets. Shares of Standard Chartered PLC dropped 3.3%, Barclays PLC (BCS) shaved off 1.7% and Royal Bank of Scotland Group PLC (RBS) fell 1.2%.

Associated British Foods PLC slipped 1.1%, as Exane BNP Paribas cut the firm to underperform from neutral.

On a more upbeat note in London, Vodafone (VOD) rallied 6.8%, after Bloomberg News late Tuesday reported that Verizon Communications (VZ) is considering several options involving its relationship with the U.K. telecom giant. The options range from ending the wireless venture to a full merger, the report said. Vodafone owns a 45% stake in the Verizon Wireless subsidiary, while Verizon holds the rest. A representative from Vodafone declined to comment. See: Vodafone up 5% on report Verizon mulling options

Among other notable gainers, shares of John Wood Group PLC added 4.3%, after HSBC lifted the oil-services firm to overweight from neutral, citing prospects for attractive double-digit earnings growth in 2013 and 2014.

Tesco PLC (TESO) advanced 1.6%, as Credit Suisse lifted the supermarket retailer to outperform from neutral.

Admiral Group PLC put on 5.3%, after the car insurer reported a 15% rise in pretax profit and lifted dividends 25%. See: Admiral Group '12 pretax profit, payout higher

Shares of Melrose Industries PLC climbed 2.7%. The investment company reported a rise in 2012 pretax profit, raised its dividend and said it expects further progress in 2013. See: Melrose '12 pretax net, dividend up; sees progress

Shares of Legal & General Group PLC picked up 2%, as the investment and insurance firm posted a rise in its full-year dividend and said it expects earnings to grow in 2013. See: Legal & General year profit up; sees '13 rise

Outside the major index in London, shares of Ladbrokes PLC fell 0.6%, after UBS cut the betting firm to neutral from buy.

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