LONDON MARKETS: FTSE 100's Sheds Gains As Oil, Mining Stocks Drop

By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- The U.K.'s benchmark stock index erased an earlier gain and headed south Monday afternoon, with oil shares pulling back and mining companies falling further.

The FTSE 100 dropped 1.1% to 6,233.33, moving toward its sixth consecutive loss.

An earlier rise for the benchmark was supported by gains among oil and gas shares as oil prices were slightly on the mend. But those moves fell apart, with West Texas Intermediate crude-oil futures (CLF5) falling below $57 a barrel. Brent crude futures have returned below $62 a barrel.

There was "an element of misplaced optimism in early trade as (Brent Crude) oil found some buyers at $60/bbl -- this helped to lead indices higher with many falsely caught long on what was essentially some profit taking on last week's sell off," offered Brenda Kelly, chief market strategist at IG, in emailed comments.

Among oil majors, BP PLC fell 2.1% and Royal Dutch Shell PLC lost 1.2%.

After ranking at the top of the FTSE 100 earlier Monday, Tullow Oil PLC shares fell 1.4% and BG Group PLC declined 1.6%. Tullow shares have declined over the past eight sessions, and BG Group has fallen in the last three sessions, each hit as oil prices have tumbled to five-year lows due to oversupply concerns.

The oil and gas group last week dropped more than 3%.

The London benchmark also turned lower along with the broader European market on Monday, with Russian stocks and the ruble sliding further against the U.S. dollar. Russia's central bank said Monday it expects a deeper economic contraction if oil prices stay at the $60-a-barrel level.

Miners BHP Billiton PLC (BHP) and Rio Tinto PLC (RIO) came under further pressure as the session wore on, down by 3% and 2%, respectively. BHP was downgraded at RBC Capital Markets to underperform from sector-perform.

Separately, Australia on Monday projected iron-ore prices will trade around $60 a metric ton, much lower than its previous estimate of $92 a metric ton.

Commodity firms, particularly oil and gas companies, are dividend heavyweights in the U.K., accounting for nearly 13% of payouts across the market, "so if their profits take a battering, they will find it harder to grow their dividends," said Justin Cooper, chief executive of shareholder solutions at Capita Asset Services, in a report Monday. "We would not expect them to cut payouts in dollar terms, however."

Meanwhile, shares of BT Group PLC were up 1.4% as investors awaited an announcement on whether EE or rival provider O2 will land an acquisition bid from BT, which wants to return to the mobile-services market. EE is a joint venture of Deutsche Telekom AG and Orange SA , and O2 is owned by Telefonica .

Shares of BT rival Sky PLC were down by 3.4%, leading losses on the FTSE 100.

Last week, the FTSE 100 fell 6.6%, marking the worst week since August 2011, according to FactSet.

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