London market: Retailers' reports may depress stocks

UK STOCKS may be led lower this week by retailers as Debenhams, Sainsbury's and Boots make trading statements. Technology shares could slide as Misys and ARM Holdings report earnings.

"Prices are continuing to fall, and I think it's very difficult for retailers to adapt to that," said Brennan Hiorns, chief investment officer at Taylor Young Investment Management. "We can see how M&S has fallen apart in the course of a year."

Marks & Spencer, the UK's biggest clothing retailer, said Thursday that sales fell 9.6 per cent during the first 15 weeks of its new fiscal year, after supply problems eroded sales. Its shares fell 1.9 per cent last week and have dropped 29 per cent in the last 12 months.

The benchmark FT-SE 100 index rose 0.01 per cent last week. BP Amoco led the gains, up 4.3 per cent, as crude oil climbed 3.2 per cent to $19.11 a barrel. Misys, that provides software to banks, reports full-year profit on Thursday. The shares have gained 16 per cent this month. ARM, that designs microprocessors for mobile phones, is expected to post first-half profit Wednesday. The shares have climbed 39 per cent. "By and large the anticipation of earnings has been taking place this week," said Roger Hornett, a director at Societe Generale. "The normal reaction to this is a sell-off," he added.

Stocks could also be shaken by concern that the US economy is growing too fast and could trigger a rate rise. The Federal Reserve lifted its basic rate by 25 basis points on 30 June to 5 per cent. Investors will pore over every piece of data out of the US to look for signs that the Fed could move again.

"You have a tremendous sensitivity to any sense of inflation," said Mr Hiorns. "As bits of news come in which affect either confidence or inflation concerns, you'll see the market move."

The FT-SE 100 touched an intra-day record of 6,663.7 on 4 May and has not closed below 6,150 points since then.

"The index has rallied free from this resistance on a number of occasions, but each time the market runs out of enthusiasm and falls back to earth," said Brian Kiely, technical strategist at the Royal Bank of Scotland.

Investors said a rise in US interest rates may push the index below this trading range. Still, small companies could extend gains as investors search for stocks that are cheaper than their larger counterparts.