By Simon Kennedy, MarketWatch
LONDON (MarketWatch) — The U.K.’s benchmark stock index slipped Tuesday, with National Grid PLC among the biggest fallers, while deal news helped bolster shares in the technology sector.
The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.34% declined 0.2% to end at 6,007.06.
Shares of National Grid shed 1.8% after HSBC cut its rating on the electricity network operator to underweight from neutral. The broker said the benefits from greater clarity to network regulations are now fully priced in. National Grid’s stock has rallied steadily since mid-March and on Monday hit its highest level since January 2010.
Generator rental company Aggreko PLC /zigman2/quotes/210267838/delayed UK:AGK +0.79% fell 2%, giving back some of the stock’s 5.3% gain on Monday, when it secured a deal to provide temporary generating capacity in Japan.
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Shares of Barclays PLC /zigman2/quotes/208409333/delayed UK:BARC -1.42% /zigman2/quotes/206581728/composite BCS -1.05% dropped 0.5% after the Financial Times reported that the bank’s internal forecasts indicate a key measure of profitability will fall or remain flat this year.
The bank is targeting a return on equity of 13% in 2013. But that figure was just 7.2% in 2010 and could dip below 7% this year, the newspaper reported. Chief Executive Bob Diamond is considering taking on more risk in an effort to boost profitability, the report said. Read more on the falling profitability of European banks.
A spokeswoman for Barclays said in an email that the FT story “is inaccurate on a number of points” and that if the bank had anything to say to the market on a change in risk attitude, it would have said it.
Seymour Pierce analyst Bruce Packard said the revenue outlook at Barclays is uncertain and that competition is sharp because banks like Citigroup Inc. /zigman2/quotes/207741460/composite C -0.40% , Royal Bank of Scotland Group PLC and UBS AG /zigman2/quotes/206172872/composite UBS -2.50% were rescued during the crisis, rather than being allowed to fail.
Angus Campbell, head of sales at Capital Spreads, said the banking sector is also coming under pressure from worries over sovereign debt after Moody’s Investors Service downgraded Portugal’s rating to Baa1 from A3. Read more about Portugal downgrade.
“There are still considerable risks within the market. Portugal is getting nearer and nearer to a bailout,” Campbell said.
TUI Travel rallies
Shares of holiday company TUI Travel PLC rose 2.4%, trailing a 3% rally for its German parent, TUI AG /zigman2/quotes/206714402/delayed DE:TUI1 +2.58% .
Media reports Monday said TUI AG was in talks to sell a 30% stake in container shipping company Hapag-Lloyd to an Omani state-owned fund and China’s HNA Group Co. Reuters reported the Omani fund had already bought a 15% stake.
Previous reports have indicated that TUI AG could use proceeds from selling its stake in Hapag-Lloyd to buy more shares of TUI Travel.
A spokesman for TUI AG said the company is in talks with potential investors in Hapag-Lloyd and that it is also continuing with plans for an initial public offering of the company. He added, however, that TUI has not sold a stake in the business.
In the mining sector, Vedanta Resources PLC rallied 4.4% and was the top gainer in the FTSE 100.
Among other advancers, shares of life-insurance group Resolution Ltd. rose 3.2% after Citigroup reiterated its buy rating and lifted its price target on the stock.
“The combination of lower financial risk, excess capital, receding fears of M&A/mission creep and a cheap valuation drives our investment case for the stock,” Citigroup said.
Technology stocks were mostly higher after Texas Instruments Inc. /zigman2/quotes/202237907/composite TXN +1.19% said late Monday that it will buy National Semiconductor Corp. in a $6.5 billion deal. Read more about TI deal for National Semi.
Analysts at Cheuvreux said they expect to see more deals ahead. Shares of ARM Holdings PLC rose 2.6%, and small-cap technology firm Wolfson Microelectronics PLC climbed more than 5%.
Outside the main index, shares of CD and DVD retailer HMV Group PLC tumbled nearly 20% after the company issued another profit warning. The retailer said difficult trading conditions mean adjusted pretax profit for the financial year will be about 30 million pounds.
It had warned in March that adjusted pretax profit would be “moderately below” the £45 million consensus forecast.