By This Is Money Reporters

PUBLISHED: 03:58 EST, 20 March 2014 | UPDATED: 12:42 EST, 20 March 2014

17.30 (CLOSE): Blue-chip shares have fallen after US Federal Reserve boss Janet Yellen warned that US interest rates could start to rise in the first half of next year.

The guidance was earlier than financial markets had been expecting and came as the Fed took another step in winding down the country’s monetary stimulus push by cutting 10 billion US dollars (6billion) from monthly bond purchases.

It saw the FTSE 100 Index – whose constituents are heavily exposed to the American economy – fall by 30.7 points to 6542.4.

Warning: Markets have been affected by news from America that interest rates could rise next year.

The slide followed declines last night on Wall Street but in the latest session New York’s Dow Jones Industrial Average was up as it recovered some of the losses.

Stock exchanges in Europe looked untroubled, with Germany’s Dax and France’s Cac 40 ahead.
On currency markets, the pound held firm at 1.65 US dollars and 1.20 euros.

In London, the fall-out from the Budget was also much in evidence, particularly among gambling stocks after the Chancellor increased the tax on fixed odds betting terminals from 20 per cent to 25 per cent.

William Hill initially estimated a hit of 16million over a year but increased this figure to 22million after clarification that the hike would also apply to revenues from lower-stake terminals such as fruit machines.

Shares fell 7 per cent in the wake of the Budget announcement and were off as much as 3 per cent in the latest session, wiping up 300million from its value since Tuesday night. It pared back some of the losses later to close down 4.9p, or 1 per cent, at 346.6p.

Ladbrokes, which had also dropped sharply in the wake of the Chancellor’s speech, fell by a further 6.3p, or 4 per cent, to 134.1p.

The pensions industry has also been battered after the Chancellor gave retirees the freedom to draw down as much or as little of their pension pot as they want, removing the need to buy an annuity.

Friends Life owner Resolution was the biggest faller in the FTSE 100, off by 5 per cent, or 16.9p, to 318.1p as it warned of the impact on new business flows in the individual annuity market.

However it insisted annuities will continue to be an important product and that overall the proposals were positive for the retirement savings market.

Legal & General steadied after an 8 per cent post-Budget fall as Shore Capital said that companies such as it and Prudential were likely to be beneficiaries in the long term as more people save.

L&G rose 1.9p to 213.1p, Aviva added 3.3p to 493.7p, Standard Life climbed 8.7p to 362.7p and the Pru gained 9.5p to 1349p.

But Partnership Assurance, which provides enhanced annuities for people with lower life expectancies due to health and lifestyle issues – and lost more than half its value on Wednesday – fell heavily again, down another 13 per cent or 19p to 124p.

The biggest FTSE 100 risers were SSE, up 48p to 1486p, Standard Life up 8.7p to 362.7p, Next up 150p to 6730p and Tullow Oil up 13.5p to 780p.

The biggest FTSE 100 fallers were Resolution, down 16.9p to 318.1p, Hammerson down 20.5p to 545p, Hargreaves Lansdown down 49p to 1455p and British Land down 16p to 659.5p.

15.00: The Footsie cut its losses in midafternoon trade as US stocks put in an early rally folllowing some upbeat economic data, although the mood in global markets remained cautious after 2015 rate rise signals from Federal Reserve boss Janet Yellen yesterday.

With an hour and a half of trading to go, the FTSE 100 index was down 45.4 points at 6,527.7, albeit bouncing off a session low of 6,492.6 following the positive US data.

In early deals on Wall Street, the Dow Jones Industrial Average was up 49.8 points at 16,272.0, bouncing from an opening loss and recovering some of yesterday’s triple-digit drop after being spooked by Yellen’s comments.

US rally: An early recovery by US stocks helped the Footsie cut its losses in afternoon trade

The Federal Reserve head said that the US central bank would probably end its massive bond-buying programme this autumn, and could start raising interest rates around six months later.

Lee Mumford, financial sales trader at Spreadex said: ‘Equities remained sluggish this morning as investors digested Janet Yellen’s comments last night, signalling interest rates could rise by the middle of next year.

‘The turnaround comes after Philly Fed Manufacturing data showed a jump in general business conditions, coming in at 9, far higher than the 4.2 expected,’ he added.

Other US data released earlier, however, was more mixed, illustrating the difficult choices the Fed will have to make on monetary policy.

Initial US jobless claims climbed by 5,000 to a seasonally adjusted 320,000 in the period of March 9 to March 15, the Labor Department said, less than the 325,000 estimate of economists.

While the Conference Board’s leading economic index rose 0.5 percent in February, after a 0.1 per cent rise in January and a 0.1 per cent decline in December.

But sales of US existing homes declined 0.4 per cent in February to a seasonally adjusted annual rate of 4.6million, the slowest pace since July 2012, the National Association of Realtors said.

13.00: A big drop by drugs group GlaxoSmithKline weighed on the Footsie at lunchtime as global stock markets took a tumble after new US Federal Reserve boss Janet Yellen yesterday hinted interest rates could rise earlier than expected.

The FTSE 100 index was down 68.1 points at 6,505.1, back close to its lowest level since early February.

A 2 per cent fall by GlaxoSmithKline, down 35.0p to 1,620.0p took the most points off the FTSE 100, after the firm disclosed that one of its experimental cancer vaccine failed in a second test.

Drug disappointment: Big falls by GlaxoSmithKline weighed on the Footsie today

The findings showed that Glaxo’s MAGE-A3 therapeutic vaccine did not help patients with non-small cell lung cancer in a late-stage Phase III study.

’With a further read-out pending, we are not pinning much hope on the product,’ said Panmure Gordon analyst Savvas Neophytou.

Global stocks were hit after Federal Reserve head Janet Yellen said that the US central bank would probably end its massive bond-buying programme this autumn, and could start raising interest rates around six months later.

The fall-out from the Budget was also much in evidence in London, particularly among gambling stocks after the Chancellor increased the tax on fixed odds betting terminals from 20 per cent to 25 per cent..

William Hill initially estimated a hit of 16million over a year but today increased that figure to 22million after clarification that the hike would also apply to revenues from lower-stake terminals such as fruit machines.

Shares in William Hill fell 7 per cent in the wake of the Budget announcement and were off a further 3 per cent today, down 9.65p to 341.85p and wiping 300million from its value since Tuesday night.  Ladbrokes was off another 7.1p to 133.3p.

The pensions industry has also been battered after the Chancellor gave retirees the freedom to draw down as much or as little of their pension pot as they want, removing the need to buy an annuity.

Budget blues: Bookies took another tumble following tax changes in yesterday’s 2014 Budget

Friends Life owner Resolution fell 14.6p to 320.3p as it warned of the impact on new business flows in the individual annuity market, although it insisted annuities will continue to be an important product and that overall the proposals were positive for the retirement savings market.

Legal & General steadied after an 8 per cent fall yesterday as Shore Capital said that companies such as L&G and Prudential were likely to be beneficiaries in the long-term as more people save.

L&G shares rose 2.7p to 213.9p, Aviva added 2.7p to 493.1p, Standard Life cheered 4.85p to 358.85p and the Pru gained 8.25p to 1347.5p.

Partnership Assurance, which provides enhanced annuities for people with lower life expectancies due to health and lifestyle issues, lost more than half its value on Wednesday and was down another 6 per cent or 10.1p to 132.9p today.

The Budget’s creation of a new 15,000 super ISA has been positive for shares in fund platforms and wealth managers, with St James’s Place rising by another 14.7p to 880.2p today.

Also bucking the weak blue chip trend, energy supplier SSE topped the blue chip leader board with a 40.0p gain to 1,478.0p as broker Morgan Stanley raised its rating for the stock to overweight from underweight..

‘SSE is cheap versus peers … The balance sheet is safe, we think dividends can be maintained even without energy supply profits, and EPS revisions have troughed. Capex reductions would be a positive,’ analysts at Morgan Stanley said in a note.

Broker comment also gave a boost to taxpayer owned lender Royal Bank of Scotland, up 1.7p to 303.2p.

Investec Securities raised its rating for RBS to sell from hold following a 17 per cent drop in its share price over the three weeks since the bank posted annual results.

‘RBS is a peculiar stock that, in our view, has a recurring tendency to benefit from irrational exuberance between financial reporting. Partly for this reason, we retain a tactical preference to be short into results, and neutral (with a positive bias) ‘in between’ when we perceive that upside risks are greater,’ Investec analyst Ian Gordon said in a note.

Clothing retailer Next was also a strong gainer, up 115.0p to 6,695.0p after meeting expectations with an 11.8 per cent rise in annual profit, fuelled by booming sales at its online business.

Some analysts, however, reckoned the scope for further gains in Next was limited, with the stock having jumped some 24 per cent this year.

‘We view Next as a core holding, but with the shares valued at a premium to the sector, we believe the valuation is up with events,’ analysts at Investec Securities said in a note.

9.55: Insurers came under renewed pressure on the markets today after Chancellor George Osborne torpedoed the annuity industry in the Budget.

Osborne gave pensioners the freedom to draw down as much or as little of their pension pot as they want, removing the need to buy an annuity.

Legal & General fell another 2.6p to 208.6p, despite Shore Capital arguing that yesterday’s 8 per cent sell-off was overdone because companies such as L&G and Prudential were likely to be beneficiaries in the long-term as more people save.

Fed watch: New US central bank boss Janet Yellen surprised traders by suggesting an interest rate hike could come by mid-2015

Partnership Assurance, which provides enhanced annuities for people with lower life expectancies due to health and lifestyle issues, lost more than half its value yesterday and was down by another 11 per cent or 14.8p to 129.4p today.

The Budget’s creation of a new 15,000 super Isa has been positive for shares in fund platforms and wealth managers, with St James’s Place rising by another 32p to 897.5p today.

However, Hargreaves Lansdown fell back after surging 14 per cent yesterday – it was down 36p at 1450p.

The FTSE 100 fell 45.8 to 6,527.4, with insurers dragging on the blue chip index for the second day in a row.

However, global markets have fallen across the board after Federal Reserve boss Janet Yellen said US interest rates could start to rise in the first half of next year.

The guidance was earlier than financial markets had been expecting and came as the Fed took another step in winding down the country’s monetary stimulus push by cutting $ 10billion (6billion) from monthly bond purchases.

The message on rates sent Wall Street lower and the US dollar higher last night, and resulted in a weak session in Asia and falls in Europe this morning.

City commentators are mulling over the impact of Yellen’s comments, including whether they were intentional or a slip of the tongue due to nerves at her first news conference as Fed boss.

‘Fed chair Janet Yellen spooked the markets by suggesting we could see the first hike in interest rates in the middle of 2015,’ said Craig Erlam of Alpari.

‘Last night was a prime example of the market hearing only what it wants to hear and ignoring all of the caveats, which more often than not make the initial statement irrelevant. This mistake has been made repeatedly in the past and it appears traders have not learned from their mistakes.

‘A great example of this was former Fed chairman Ben Bernanke’s claim last May that the Fed would taper [make cuts to its stimulus programme] ‘later this year’, adding that this was dependent on the strength of the economic data.

‘In the end, the Fed did taper in December, but investors had convinced themselves that he was hinting at September, despite the economic data at the time being below par. On this occasion they chose to ignore the caveat and a lot got burned. It will be interesting to see if history repeats itself next year.

Pensions shake-up: Insurers came under renewed pressure on the markets today after Chancellor George Osborne removed the need to buy an annuity

‘Another interesting point here is that many in the markets have assumed for a while that the first rise in interest rates could come as early as the middle of 2015, so these comments from Yellen are only in line with expectations.

‘Maybe a lot of the drop in the indices, and dollar rally and gold dive for that matter, can be attributed to the growing number of FOMC members that saw rates rising to 1 per cent by the end of 2015.’

Michael Hewson of CMC Markets said: ‘As expected the Federal Reserve last night shaved another $ 10billion from their monthly asset purchase programme, but it was the press conference after the initial decision which caused markets to sell-off sharply when Janet Yellen in her first post meeting press conference as Fed chair suggested about the course of interest rates that unsettled markets somewhat. 

‘Assuming a continuation in the current pace of tapering the bond buying program looks likely to end in the fourth quarter, and in answer to a question about when interest rates might rise the Fed chief suggested that a rise in rates might come as early as the second quarter of 2015, much earlier than markets had expected.

‘Whether she intended to be taken so literally is open to debate but it was enough to prompt a sharp reversal, and as such we can expect to see a lower open in Europe this morning.

‘The Federal Reserve also dropped its unemployment threshold target of 6.5 per cent, following the example of the Bank of England, and said it would look at a wide range of factors before taking any decisions on when to move on rates.’

Hewson added: ‘While the Fed may have intended to be dovish by downgrading growth forecasts for 2014, the fact that the committee are even speculating about raising rates just over 12 months out would suggest that they remain confident about the pace and nature of the economic recovery, despite concerns about the recent bad weather on the US economy.

‘This marked change of tone from previous meetings saw stocks drop, bond yields rise along with the US dollar, which hit its highest level against the euro in two weeks in the space of an hour.

‘If Janet Yellen had intended to make an impression in her first meeting as Fed chairwoman then she certainly succeeded yesterday, begging the question as to whether she intended to come across as hawkish as she did.’

Jonathan Sudaria of Capital Spreads said: ‘Overnight at the Federal Open Market Committee press conference, after a very dovish statement, when pressed about rate hikes, Yellen spluttered out a date of possibly six months after the end of tapering.

‘Blindly, everyone has calculated that with tapering at $ 10billion a month, six months after that would be mid 2015. However, this doesn’t tally with the tone of the words of the statement and one wonders if a bit of stage fright took hold of her in front of the glare of the cameras for the first time.

‘After removing the 6.5 per cent unemployment threshold to allow loose monetary conditions to persist even longer, it wouldn’t make sense to then blind side markets with the threat of an imminent rate hike nearer than anyone had forecast. Expect regional Fed members to be doing the media circuit trying to finesse what she actually meant.’

8.55: The FTSE 100 opened down 30.9 points at  6,542.2, tracking a drop in global equities after the US Federal Reserve signalled it could raise interest rates much sooner than expected.

New central bank boss Janet Yellen sent US stocks and bonds tumbling after suggesting that interest rates could rise by mid-2015, pointing to a more aggressive push towards normalising the cost of borrowing than anticipated.

Yellen cut the Fed’s bonding buying stimulus programme by a further $ 10billion to $ 55billion a month, and suggested it could be wound up entirely by this autumn.

Market watch: Traders were rattled by Fed boss Janet Yellen’s suggestion of aggressive moves towards normalising US interest rates

The Fed sought to help the US recover from the financial crisis by launching a vast stimulus scheme, which generated plentiful cheap money that has boosted stock markets all over the world in recent years.

Its gradual withdrawal, which began last December, has prompted investors to pull money out of emerging markets and caused volatility across many other asset classes.

The US Dow Jones index slid 114 points to finish at 16,222.2 yesterday, while Japan’s Nikkei fell 187 points to close at 14,224.2 overnight.

Yellen’s comments were made after the European market close, but the FTSE 100 closed 32.15 points lower at 6,573.13 yesterday following the Budget.

Insurers’ shares took a hit after Chancellor George Osborne’s announcement that no one will have to buy an annuity in future if they don’t want one.

Bookmakers slumped due to a hike in tax on fixed odds betting machines from 20 per cent to 25 per cent.

Stocks to watch today include:

NEXT: The clothing retailer met guidance with a 11.8 per cent rise in annual profit, driven by growth at its Directory internet and catalogue business.

GLAXOSMITHKLINE: The pharmaceutical company said it was disappointed by some of the results of a stage III trial for a lung cancer treatment but would continue with it as there could still be a group of patients who may benefit.

LLOYDS: The part-nationalised bank said it had sold a real estate loan portfolio for €280million.

ARM: The firm expects the value of ARM-based chips in smartphones and mobile computing application processors to reach $ 20billion by 2018 from $ 13billion last year.

UNITED UTILITIES: The company said it was expecting higher operating profits for 2013-2014.

PREMIER FARNELL: The distributor of small electronics and electronic parts reported an 8 per cent rise in full-year pre-tax profit, helped by strong sales in emerging markets in the second half of the year.

MULBERRY: Bruno Guillon quit as chief executive less than two months after the luxury fashion company issued a major profit warning which hammered its shares.

CREST NICHOLSON: The housebuilder said forward sales for 2014 and beyond were up by 50 per cent compared with last year.

BP: The oil giant rejoined bidders for exploration and production leases in the Gulf of Mexico and won 24 tracts after the US government lifted a 16-month ban barring it from new federal contracts.

ROYAL BANK OF SCOTLAND: The bank must face a US lawsuit seeking to force it to cover losses suffered by a bond insurer on a $ 1.15billion securities offering backed by allegedly defective and fraudulent home loans.

M&C SAATCHI: The advertising agency said full-year profit rose 8 per cent as it brought new clients on board and won new contracts from existing clients.

TED BAKER: The fashion retailer posted a 35 per cent rise in full-year profits