By This Is Money Reporters

Published: 02:36 EST, 9 May 2014 | Updated: 11:25 EST, 9 May 2014

17.10 (close): The FTSE 100 Index dropped back from an 11-week high today after sentiment was hit by a heavy slump for energy services firm Petrofac.

Petrofac dived more than 15 per cent, or 211p to 1177p, after it warned its 2014 net profit would fall by as much as 11 per cent due to the poor performance in one of its divisions, wiping over £700million off its value.

The fall in the FTSE 100 Index of 24.7 points to 6814.6 came despite more encouraging news from the UK economy, with factory output of 1.4 per cent representing the best quarter for manufacturers since 1999. The trade deficit also narrowed in March.

Footsie down: Opening falls by US stocks kept up the pressure on the UK blue chip index in late afternoon trade.

However, this boost did not stop the pound falling back from four-year highs against the dollar to 1.68 as traders thought US assets now looked good value.

Sterling rose to 1.22 against the euro after European Central Bank president Mario Draghi’s hint yesterday that the bank may ease its monetary policy next month.

The weakness in the FTSE 100 came despite an easing in China’s inflation rate to 1.8 per cent, a figure which should give leaders room to stimulate their slowing economy if needed.

International Airlines Group, which owns British Airways and Iberia, was another big faller, even though it reported narrower losses for the first quarter of the year.

BA cut its deficit for the seasonally quiet period to 5million euros (£4million), while the Spanish carrier continued to benefit from turnaround efforts as its loss fell to 111 million euros (£90.7million).

Shares were initially higher but later stood 19.6p lower at 385p.

Engines giant Rolls-Royce fell more than one per cent after a downgrade by Barclays in which it warned that slow growth anticipated by management will continue for longer than expected. The broker cut its target price to 930p from 1225p, causing shares to fall 12p to 1001p.

Among other broker changes, banking giant Barclays was in focus after its announcement that it will take the axe to 19,000 jobs by 2016.

JPMorgan raised its price target to 305p from 285p and kept its rating at overweight, while Citi also put a 305p target on the shares, down a shade from 315p, but reiterated its buy rating. Citi said Barclays’ revised strategy was sensible, although shares still slipped 0.9p to 261.6p.

The biggest top flight gain came from Marks & Spencer, which lifted two per cent or 9p to 458.4p in a session when rival Next lost 15p to 6465p and FTSE 250 stock Debenhams improved 1.6p to 81.6p.

In the FTSE 250 Tullett Prebon was the biggest faller after the City broker posted sales 12 per cent lower at £248million. It blamed low market volatility and tougher financial regulations for subdued trading. Shares fell nearly six per cent, or 18.5p to 297.2p.

The biggest risers on the FTSE 100 index were Intertek up 41p to 3027p, Unilever up 27p to 2639p, Diageo up 20p to 1850p and Pearson up 19p to 1137p.

The biggest fallers were Petrofac down 211p to 1177p, AstraZeneca down 112.5p to 4600.5p, Shire down 91 to 3309p and easyJet down 30 to 1685p.

15.10: The Footsie headed for the weekend in cautious fashion, retreating from yesterday’s 11-week high with investors awaiting the next move in Ukraine, as US stocks also started lower today.

With around an hour of trading to go, the FTSE 100 index was down 28.1 points at 6,811.1, just above the session low of 6,807.52.

In early deals on Wall Street, the Dow Jones Industrial Average was down 0.3 per cent, or 41.8 points at 16,510.68, with the broader S&P 500 index and tech-laden Nasdaq Composite index both off 0.4 per cent.

The Nasdaq is set for its largest weekly decline in a month after a choppy week’s trading which saw Twitter shares slide after a post-float lock-up on sales of stock in the social media group expired.

Investors were nervous after pro-Russian separatists in eastern Ukraine vowed to push ahead with a referendum on secession this Sunday despite Russian president Vladimir Putin’s call for the vote to be postponed.

Russians celebrated Victory Day today, honouring the armed forces and the millions who died in World War II at a time the country is locked in the worst crisis with the West, over Ukraine, since the end of the Cold War

There was little economic data to provide direction in New York, with US wholesale inventories up 1.1 per cent in March, better than a revised 0.7 per cent advance in February.

12.45: The Footsie dropped back from an 11-week high today, with sentiment on concerns over the situation in Ukraine and the blue chip index  hit by a heavy slump from energy services firm Petrofac.

By lunchtime, the FTSE 100 index was down 22.7 points at 6,816.5, just holding off the morning low of 6.807.52.

The top flight’s slide came despite more encouraging news from the UK economy, with March’s factory output of 1.4 per cent representing the best quarter for manufacturers since 1999. The trade deficit also narrowed in March.

Economy boost: March’s factory output of 1.4 per cent represented the best quarter for British manufacturers since 1999.

Martin Beck, senior economic adviser to the EY ITEM Club said: ‘While March’s industrial output numbers showed a small monthly decline in output, the underlying picture remains positive.

‘Overall growth was dragged down by a lacklustre performance in oil and gas and the utilities sector. But manufacturing output saw its fourth consecutive monthly expansion, the longest consistent run of growth since 2006.

‘So the ‘march of the makers’ continues. And with April’s manufacturing PMI registering one of its best readings in the last three years, Q2 seems set fair for further strong growth in the manufacturing sector,’ Beck added.

Energy services group Petrofac dropped more than 15 per cent, or 219p to 1,169p, after it warned its 2014 net profit would fall by as much as 11 per cent due to the poor performance in one of its divisions, wiping over £700million off its value.

International Consolidated Airlines Group, which owns British Airways and Iberia, was another faller, even though it reported narrower losses for the first quarter of the year. IAG shares were initially higher but later reversed to shed 13.6p at 391p.

Engines giant Rolls-Royce was also under pressure, sliding more than 1 per cent after a downgrade by Barclays in which it warned that slow growth anticipated by management will continue for longer than expected.

The broker cut its target price for Rolls-Royce to 930p from 1,225p, with the shares down 15.5p to 997.5p.

Among other changes, banking giant Barclays was in focus as brokers responded to yesterday’s its announcement that it will take the axe to 19,000 jobs by 2016.

JPMorgan raised its price target to 305p from 285p and kept its rating at overweight, while Citi also put a 305p target on the shares, down a shade from 315p, but reiterated its buy rating. Citi said Barclays’ revised strategy was sensible, although shares still slipped 0.9p to 261.6p after gains yesterday.

The biggest top flight gains came from Marks & Spencer, which gained 2 per cent or 9p to 458.4p, while rival Next added 37.4p to 6,517p after the latest weekly John Lewis sales figures showed strong growth in clothing, especially womenswear.

09.30: The Footsie stayed weak as the morning session progressed as the rally for global markets tailed off today despite positive news from the Chinese economy and decent figures from the owner of British Airways.

After an hour and a half of trading, the FTSE 100 index was 16.3 points lower at 6823.0, in line with falls by other European markets as gains made yesterday after European Central Bank president Mario Draghi gave a strong hint that the bank may ease its monetary policy next month reversed.

The downturn by stocks came despite an easing in China’s inflation rate to 1.8 per cent, a figure which should give the country’s leaders room to stimulate their slowing economy if needed.

Take off: Owner IAG said British Airways cut its deficit for the seasonally quiet first quarter to £4million.

International Airlines Group was one of the biggest risers in the top flight, up 1.5 per cent or 4.4p to 409.1p after it reported narrower losses for the first quarter of the year.

British Airways cut its deficit for the seasonally quiet period to £4million, while Iberia continued to benefit from turnaround efforts as its loss fell to £90.7million.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers said: ‘The reduced loss at the airline is better than forecast. Cost reduction at the company remains central, with areas such as handling, catering, property and IT still very much in focus. Increased staff productivity, particularly at Iberia, is playing its part, whilst it and the broader industry’s move to more fuel efficient aircraft remains a key theme.

‘On the downside, the group’s cyclical nature continues to leave it dependent on an improving global economy. Uncontrollable fuel costs remain an uncertainty, whilst the gain already seen in the share price, up 140 per cent over the last 18 months, provides some room for caution.

‘In all, IAG is clearly making progress. Group cash has been highlighted by management, while hopes of a return to the payment of a dividend are moving onto the agenda,’ Bowman added.

The biggest blue chip gain came from Marks & Spencer, which added 8.3p to 457.7p, while clothing retail rival Next put on 30p to 6,510p and FTSE 250 department stores group Debenhams improved 1.6p to 81.6p after the weekly John Lewis sales figures showed strong growth in clothing, especially womenswear.

On the downside with blue chips, energy services group Petrofac dropped 17 per cent, or 238.0p lower to 1,150.0p after it warned its 2014 net profit  would fall by as much as 11 per cent due to the poor performance of its Integrated Energy Services (IES) division.

Petrofac, which had pinned many of its medium-term growth projections on its IES division, said it now expected to report 2014 net profit between $ 580million and $ 600million, down from the previous target of little or no growth from the $ 650million it reported in 2013.

Mid cap interdealer broker Tullett Prebon was also under pressure, losing 7 per cent or 21.9p to 296.9p after it said it would cut costs and trim headcount as challenging market conditions continued to weigh on its business, sending revenue 12 per cent lower in the first four months of the year.

Among other mid cap fallers, power station owner Drax dropped 2.5 per cent or 17.0p lower to 660.0p after the firm warned that it expects to see a fall in 2014 earnings due to weak power and renewable energy subsidy prices.

And Johnston Press, publisher of ‘The Scotsman’ and ‘The Yorkshire Post’ newspapers lost a quarter of its value with a slide to 18.2p, down 6.0p after it unveiled a £360million refinancing plan that it hopes will restore battered revenue growth.

The Edinburgh-based Johnston Press said its adjusted group revenues declined in the mid-single digits in percentage terms in the 17 weeks to April 26, hurt by lower circulation and print  advertising revenue. The company  also announced an advertising partnership with BSkyB. 

08.20: The Footsie was lower in opening deals this morning, slipping back after climbing to a 10-week high in the previous session to track weaker performances from US and Asian stocks.

In early trade, the FTSE 100 index was down 15.8 points at 6,823.4 having closed 42.81 points higher yesterday at its highest level since February 24.

Global markets were wary about the ongoing crisis in Ukraine after pro-Moscow separatists in eastern Ukraine ignored Russian President Vladimir Putin’s call to postpone a referendum on self-rule, declaring they would go ahead on Sunday with a vote that some fear could lead to war.

Move lower: Weakness overnight in US and Asian stocks on Ukraine tensions dragged the Footsie lower first thing.

Asian stock markets were mostly lower although a tame Chinese inflation report helped shares ease off their worst levels.

Chinese consumer prices rose 1.8 per cent in April from a year earlier, while producer prices fell 2.0 per cent. Although the figures were in line with forecasts, it was still the slowest rise for consumer prices in 18 months as producer deflation persisted, underscoring sluggish demand in the powerhouse economy.

Meanwhile Britain’s economy appears to be going from strength to strength and will grow faster than previously expected this year, exceeding its January 2008 peak size in the next few months, economic think tank the National Institute of Economic and Social Research said today.

Further evidence of the economic recovery should come from March industrial and manufacturing production data, due for release at 9.30 am together with the latest UK trade figures.

Michael Hewson, chief market analyst at CMC Markets (UK) said: ‘Given the direction of travel of the UK recovery markets are more likely to be more interested in the UK March industrial and manufacturing production numbers to determine whether we can expect to see an upward revision to last week’s initial Q1 GDP number of 0.8 per cent.

‘Industrial production is expected to show a decline of 0.2 per cent, down from 0.9 per cent in February, while manufacturing production is expected to slow to 0.3 per cent from 1 per cent. Construction output is expected to expand 0.6 per cent in March and 7.1 per cent year on year.

‘If these numbers come in any way positive it will add fuel to the belief that the economy is well on the way to recovering back to its GDP peaks, pre financial crisis.

‘Indeed the NIESR is already suggesting that the UK economy may well be close to that level already and if it upgrades its assessment of GDP growth this afternoon to above 1 per cent, we can expect further pressure to be exerted on the Bank of England to look at the timing of an interest rate rise, particularly if next week’s inflation report points in a similar direction,’ Hewson added.

And in another sign of the strengthening UK economy, British employers are offering higher pay as the pool of good job candidates dries up at its fastest rate in nearly a decade, according to a survey from the Recruitment & Employment Confederation and KPMG.

Stocks to watch include:

INTERNATIONAL AIRLINES GROUP – The owner of British Airways said its seasonal first-quarter loss narrowed by 46 per cent, beating the consensus forecast, as a turnaround at its Iberia unit started to take effect.

PETROFAC – The energy services group has warned its 2014 net profit would fall by as much as 11 percent to between $ 580million and $ 600million, due to a poor performance  from its Integrated Energy Services (IES) division.

FRIENDS LIFE – The life insurer said it would miss its full-year profitability  target due to the annuities market reforms announced by Chancellor of the Exchequer George Osborne in his mid-March budget.

WPP – The proposed $ 35billion merger between US-based Omnicom Group and French rival Publicis Groupe has been called off as the challenges in forming the world’s largest advertising agency proved too immense for the partners. Now, with the merger off, the companies have surrendered their potentially dominant position to current market leader WPP.