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LONDON MARKETS : FTSE 100 Struggles To Hold Gain As China Warning Drags Down Miners

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12/07/2017 | 12:50pm CEST

By Carla Mozee, MarketWatch

Annual growth in house prices slows; May scrambles to nail Brexit issue

U.K. stocks pared gains Thursday, with pressure on miners after a warning that Chinese banks may not have enough capital to weather potential losses. Investors watched for any news about Brexit negotiations, especially about whether Prime Minister Theresa May can bring warring allies into line over what should come next.

Deal news was brewing in the betting industry, sending shares of Ladbrokes Coral PLC and William Hill PLC higher in the mid-cap market.

What markets are doing: The FTSE 100 index was up just 3 points at 7,351.23 after rising as much as 0.4%.

Consumer services, financial, utility and industry shares were up, but that was nearly offset by losses for the basic materials, oil and gas, consumer goods and tech groups. On Wednesday, the benchmark rose 0.3%, and a win Thursday would be its second in a row.

The pound came off session lows to trade at $1.3392, roughly in line with $1.3394 late Wednesday in New York. Against the euro, sterling bought EUR1.1369, turning higher compared with EUR1.1353 in the prior session.

"Against the dollar sterling managed to push back above $1.339 ... while against the euro, the currency jumped 0.3% to cross EUR1.136. This took the edge off of the FTSE's early gains," said Connor Campbell, financial analyst at Spreadex, in a note

"As the last few days have proven, however, there is still plenty of room for some pound-punishing Brexit volatility if any fresh reports come out this afternoon," he said.

What's moving markets: The International Monetary Fund has called for banks in China to bump up their capital buffers in the wake of a credit boom in the world's second-largest economy. In a review of China's financial system, the IMF said lenders may not have enough capital to weather potential losses from those credit risks.

Mining stocks in the U.K. can be sensitive to developments in China, where companies are big buyers of precious and industrial metals.

Closer to home, worries over the progress of Brexit negotiations and in particular the chances for a deal on the Irish border issue have been weighing on the pound and aiding stocks. A weaker pound can help shares of exporters on the FTSE 100, as it boosts the value of foreign sales. Around 75% of revenue for the index's components are generated overseas.

Investors are focused on whether the U.K. can nail a deal on the Irish border, the last of three Brexit issues that have to be resolved before Friday, a deadline set by lead EU negotiator Michel Barnier (https://www.theguardian.com/politics/2017/dec/06/uk-has-48-hours-to-agree-potential-deal-or-brexit-talks-cannot-progress). EU leaders are meeting Dec. 14-15 in Brussels, where they will assess whether sufficient progress in the U.K. withdrawal talks to move onto the next stage of trade and transition arrangements.

U.K. Prime Minister Theresa May is working on a new proposal for the Irish border that she will present by Thursday, Ireland's Prime Minister Leo Varadkar said, according to media reports. A dispute with May's Northern Ireland political allies over the issue of whether to have a "hard" or "soft" border scuttled a potential deal on Monday.

Housing shares: Shares of home builders held higher after Halifax said U.K. house prices rose 0.5% in November from October, marking a fifth monthly rise. But annual growth in house prices in the three months to November slowed to 3.9% from October's 4.5% reading.

Taylor Wimpey PLC (>> Taylor Wimpey) shares rose 0.7%, Persimmon PLC (>> Persimmon) gained 0.5%, Berkeley Group Holdings PLC (>> Berkeley) tacked on 0.1% and Barratt Developments PLC (>> Barratt Developments) was up a modest 0.1%.

Stock movers: In the basic materials sector, which makes up a roughly 8% weighting on the FTSE 100, shares of Rio Tinto PLC (>> Rio Tinto plc) (>> Rio Tinto plc) (>> Rio Tinto plc) fell 1.8% and Anglo American PLC (>> Anglo American) lost 1%. BHP Billiton PLC (>> BHP Billiton Plc) (>> BHP Billiton Limited) (>> BHP Billiton Limited) dropped 0.7% but Antofagasta PLC (>> Antofagasta) was up 0.4%.

Oil producers BP PLC (>> BP) (>> BP) and Royal Dutch Shell PLC (>> Royal Dutch Shell Plc) (>> Royal Dutch Shell Plc) were each down 0.5% even as oil prices were recovering from sharp declines on Wednesday .

Broadcaster Sky PLC (>> Sky) rose 1.5%. CNBC reported this week that Sky stakeholder 21st Century Fox Inc. (>> 21st Century Fox) is closing in on a deal to sell some assets to Walt Disney Co. (>> Walt Disney Company (The)) .

Ladbrokes Coral Group PLC (LCL.LN) surged 26% on the mid-cap FTSE 250 index as the bookmaker is in GBP3.9 billion takeover talks with GVC Holdings PLC (>> GVC Holdings) . GVC shares picked up 6.3% on the FTSE 250, which itself was up 0.1% at 19,856.77.

William Hill PLC (>> William Hill) , also a FTSE 250 component, climbed 3% as that bookmaker agreed to support Scientific Games Corp.'s (>> Scientific Games Corp) proposed acquisition of NYX Gaming Group Ltd. (>> NYX Gaming Group Ltd) . As part of the agreement, William Hill plans to sell the 6.8 million NYX ordinary shares it owns to Scientific Games.

Other advancers on the FTSE 100 included publisher Pearson PLC (>> Pearson) and telecom company BT Group PLC (BT.A.LN) , with shares in each up 2.2%. Building materials company CRH PLC was up 1.1%.

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