UK's FTSE falls further as property stocks drop
By Atul Prakash
LONDON, March 9 (Reuters) - Britain's top share index retreated from record highs on Monday as property shares fell, after a rise in gilt yields that made stocks paying a high dividend less attractive than lower-risk government debt.
The blue-chip FTSE 100 index was down 0.7 percent at 6,867.12 points by the middle of the trading session. That extended a decline on Friday and pushed the FTSE further away from a record high of 6,974.26 points set the week before.
Property stocks were among the worst-performers on the FTSE, and traders said that mostly caused by the rise in UK gilt yields.
The yield premium offered by 10-year British gilts over equivalent German government bonds widened to its highest since 1997 on Friday, after robust labour data from the United States raised expectations of U.S. interest rates would rise soon.
The higher dividend yields offered by property stocks lose their appeal when interest rates are rising, since government bonds are considered a safer investment than real estate stocks.
"Bond-sensitive stocks are dragging the FTSE lower, with real estate shares seeing some selling pressure as these stocks are strongly correlated with UK bonds," said Securequity sales trader Jawaid Afsar.
The FTSE 350 Real Estate Investment & Services index fell 1.4 percent. British Land and Land Securities declined 2 to 2.5 percent.
Rising stocks included WPP, the world's biggest advertising company. It gained 0.8 percent after saying demand improved in January after strong trading in North America and China.
Brown Shipley fund manager John Smith did not expect the UK stock market to make much progress, with U.S interest rates expected to rise and uncertainty growing before a British general election in May.
"Equity markets were overbought and some pullback has been likely. With the first rise in U.S. interest rates perhaps coming as early as June and uncertainties about the UK general election, the upside for equities markets looks limited," said Smith. (Additional reporting by Sudip Kar-Gupta; Editing by Larry King)
