London Market: Investors focus on the banks

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The Independent Online
UK stocks could fall this week. HSBC Holdings is expected to report first- half earnings that could be lower than this time last year as recession in Asian economies cuts profits.

Investors are likely to be focused on the British banking industry as almost half the companies in the FT-SE banking index release first-half results.

"You will see a fall in earnings but it is difficult to say how much," said Peter Hewitt, head of research at Murray Johnstone. "If you take a very long-term view, it could be a buy. I wouldn't be aggressively selling."

On Friday the benchmark FT-SE 100 index fell 73.3 points, to 5,837.0, sliding for the seventh day in nine. Lloyds TSB Group dropped 67p to 834, knocking 20 points off the index, and National Westminster Bank fell 65p to 1,060. Orange rose 47.5p to 743.

HSBC is expected to release first-half earnings tomorrow. The UK's largest bank by assets, which makes 45 per cent of its income in Asia, has been hurt by the slowdown in the region, on the concern that failing Asian banks will default on their loans.

Gilts are seen to be rising as economic reports fuel hopes that the Bank of England will keep interest rates on hold.

"Gilts will gain a further bit of support from a survey underlining the slump in manufacturing," said Neil Parker, a treasury economist at the Royal Bank of Scotland.

Yet investors "will keep one eye" on the rate meeting and "gains will be limited".

The monthly meeting of the Bank of England's Monetary Policy Committee begins on Wednesday, and all but four of 24 economists polled on Friday expect that rates will be left unchanged at 7.50 per cent.

Twenty of the 24 said rates have now peaked.

Even so, the rate meeting is "the big hurdle we have to get over next week", said Mark Wall, a UK economist at Deutsche Bank.

Analysts said this means gilts will be little affected by other reports due this week. These include a survey of service activity and figures for industrial production and narrow money supply.

"The feeling that interest rates have peaked is starting to feed through into the market," said Philip Uglow, a UK economist at Sakura Bank.

The benchmark 7.25 per cent 10-year government bond rose on Friday, pushing the yield down 5 basis points to 5.76 per cent, the lowest since 16 June.