By This Is Money Reporters

Published: 02:17 EST, 22 May 2014 | Updated: 11:49 EST, 22 May 2014

17.30 (CLOSE): Royal Mail investors were given a jolt today after chief executive Moya Greene warned about ‘increasing challenges’ in its letters and parcels businesses.

Shares slid 9.7 per cent as the message in the company’s maiden annual results overshadowed a 6.7 per cent rise in profits to £430million for the year to March 30.

In a busy session for corporate results, the FTSE 100 Index was 0.5 points lower at 6820.6.

Competition concerns: Royal Mail chief executive Moya Greene warned about the impact of intense competition in the parcels market.

In mixed economic news a manufacturing survey in China suggested the slowdown in the world’s second largest economy is easing.

Investors were also relieved that minutes from the US Federal Reserve had shown that policymakers appear to be in no hurry to raise interest rates.

However, Britain’s public finances suffered a worse-than-expected start to the financial year as borrowing in April rose to £7.4 billion – £1.7billion higher than the same month in 2013. The news knocked sterling which was down against the dollar, at 1.69, and was lower against the euro at 1.23.

In the US the Dow Jones Industrial Average added 24.23 points to 16,557.29 in early trading on strong manufacturing data.

Royal Mail shares were lower, off 56p to 519p, after Ms Greene highlighted intense competition in the parcels market and warned about the impact that the direct delivery ambitions of rivals such as TNT will have on the economics of the universal postal service unless Ofcom intervenes.

The company’s shares have surged from their launch price of 330p in October to 617p in February but have fallen back since then on fears that the watchdog might take up to two years to tackle the issue of access rights.

Ofcom said today that it did not believe there was a threat to the financial sustainability of the universal postal service and called on Royal Mail to improve efficiency.

Among other fallers, Royal Dutch Shell was 95p lower at 2456.5p and Unilever dipped 27p to 2668p after it announced the sale of its North American Ragu sauces business for 2.15 billion US dollars (£1.3billion).

Brewing giant SABMiller topped the risers’ board as it announced a 2 per cent rise in pre-tax profits and reassured investors over its performance in developing markets. Shares were 112.5p higher at 3372p, a rise of 3.4 per cent.

Elsewhere, shares in Mothercare surged 16.7 per cent – up 23.3p to 162p – after it said a recovery in fourth quarter trading had continued into the current period.

The retailer posted an annual loss of £26.3million but said its banks had given it greater flexibility by extending its lending facility to £100million.

Car parts and bicycles retailer Halfords surged 10.6 per cent, up 46.6p to 488p, after its pre-tax profit lifted 1.1 per cent to £72.8 million, beating market expectations.

The firm said its bike sales grew 19.4 per cent on a like-for-like basis over the year, aided by upgrades to its Apollo and Boardman range of cycles.

The biggest risers on the FTSE 100 Index were SABMiller up 112.5p at 3372p, Arm Holdings up 28.5p at 889.5p, Aberdeen Asset Management, up 11p at 440p and Sports Direct up 18p at 769p.

The biggest fallers on the FTSE 100 Index were Royal Mail down 56p at 519p, Royal Dutch Shell down 95p at 2456.5p, AstraZeneca down 145p at 4275p and BG Group down 27.5p at 1234p.

14:25: The Footsie has moved into negative territory, trading 4.38 points down to 6,816.66.

Meanwhile, US markets opened flat after official data showed initial jobless claims rose more than expected in the latest week, though investors continued to look ahead to data on the housing market.

The Dow Jones industrial average fell 6.55 points, or 0.04 percent, to 16,526.51, the S&P 0.03 points, or 0 percent, to 1,888.06 and the Nasdaq added 4.03 points, or 0.1 percent, to 4,135.56.

Dig deep: Miners got a boost from data showing China’s factory sector turned in its best performance in five months in May.

Daniel Sugarman at ETX Capital said: ‘Economic data out of the US so far shows weekly jobless claims increased by 28,000 to 326,000 in the week ended May 17, a little higher than forecast, but that being said, still not enough to warrant any nerves about the growth in the US labour market, which this year has been the driver of the improving fundamental growth story in America.’

12:35: The FTSE 100 continued to lose this morning’s gains, trading 0.75 points higher at 6,821.79.

Royal Mail shares fell 7 per cent after chief executive Moya Greene warned about ‘increasing challenges’ in its letters and parcels businesses.

The company, however, posted a sharp rise in profits to £430million for the year to March 30. Among other fallers, Royal Dutch Shell was 72.75p lower at 2478.75p and Unilever dipped 20p to 2675p after it announced the sale of its North American Ragu sauces business for $ 2.15 billion (£1.3billion).

Brewing giant SABMiller topped the risers board as it announced a 2 per cent rise in pre-tax profits and reassured investors over its performance in developing markets. Shares were 119p higher at 3378.5p, a rise of 4 per cent.

Elsewhere, shares in Mothercare surged 16 per cent – up 22p to 160.9p – after it said a recovery in fourth quarter trading had continued into the current period.

The retailer posted an annual loss of £26.3million but said its banks had given it greater flexibility by extending its lending facility to £100million.

Car parts and bicycles retailer Halfords surged 9 per cent, up 37.5p to 478.95p, after its pre-tax profit lifted 1.1 per cent to £72.8million, beating market expectations.

The firm said its bike sales grew 19.4 per cent on a like-for-like basis over the year, aided by upgrades to its Apollo and Boardman range of cycles.

11.15: The Footsie held firm but drifted back from earlier highs in late morning trade reflecting some disappointment that there was no revision to the second reading for Britain’s first-quarter growth estimate today.

Approaching mid session, the FTSE 100 index was up 3.6 points, at 6,824.6, falling back from an early peak of 6.846.57 and unable to renew its recent assault on the December 1999 record high of 6,950.6.

As initially estimated, UK gross domestic product between January and March grew by 0.8 per cent from the last three months of 2013, the Office for National Statistics said today.

In year-on-year terms, growth was 3.1 percent, also unchanged from last month’s preliminary estimate and the fastest rate of growth since the fourth quarter of 2007.

Britain’s economy remains 0.6 per cent smaller than its peak in early 2008, but is likely to surpass that level in the current quarter.

Howard Archer, chief European and UK economist at IHS Global said: ‘With the economy confirmed at having got off to a robust start to 2014 and with data and survey evidence so far for the second quarter looking healthy, we expect it to achieve growth of 3.0 per cent at least this year.

‘Furthermore, there is a mounting likelihood that growth will come in modestly higher than 3.0 per cent,’ he added.

However, in contrast to the confirmation of robust GDP growth, the April public finance figures provided disappointing news for the Chancellor as the underlying Public Sector Net Borrowing Requirement spiked up to a much larger-than-expected £11.5billion from £9.5billion in April 2013.

Archer said: ‘Given that public finance data can be volatile from month to month and subject to significant revisions, not too much should be read into one month’s data.

‘Nevertheless, April’s data is not the start to the fiscal year that George Osborne would have been looking for.’

Strength in heavyweight mining stocks propped up the FTSE 100 index, led by Chilean copper miner Antofagasta which rallied 14.0p higher to 785.0p after falls yesterday after a trading update.

The mining sector was lifted by signs of stabilisation in top metals consumer China’s wobbly economy, with the country’s factory sector turning in its best performance in five months in May, a private survey showed.

Further brightening the mood were expectations the Federal Reserve would continue to support the US economy following the publication of minutes from the last FOMC meeting overnight.

Some deal making activity also gave helped keep the blue chips positive, with British American Tobacco boosted by news it could back a potential merger between US cigarette makers Reynolds American and Lorillard.

British American Tobacco shares gained 80p to 3,606.0p, while peer Imperial Tobacco was 43p higher at 2,690.0p, also rallying on the sector consolidation hopes.

But bucking the slightly firmer blue chip trend, recently privatised Royal Mail dropped 6.8 per cent, or 39.2p to 535.8p, the biggest FTSE 100 faller by some margin, after it warned on competition, particularly for its parcels delivery business, as it reported a rise in profits.

Chris Beauchamp, Market Analyst at IG said: ‘Royal Mail’s earnings will assuage concerns in the short term that the newly-privatised firm is struggling, but the longer-term outlook is certainly much cloudier.

‘The rise in profits is an encouraging sign, but revenue growth isn’t keeping up, and the operating environment is only going to become more competitive from here onwards – hard choices will have to be made if it is to keep up in the parcel delivery arena.’

On the second line, Halfords strong demand for cycles in the final quarter helped boost full year sales at the retailer by 7.9 per cent, with profits up a better than expected 1.1 per cent to £72.8million.

The company was also positive on the outlook for the current year, helping its shares jump over 9 per cent higher, or 41.2p to 482.0p.

Analysts at Oriel Securities said: ‘Halfords fourth quarter trading is bordering on the extraordinary and the stellar sales growth is dropping through the profit and loss.

‘The new management team is tapping in to positive cycling trends and increasing in-store efficiencies and consensus will rise massively. Buy.’

Also on the up, shares in Imagination Technologies jumped more than 8 per cent or 17.9p to 227.2p after the chip designer announced a number of collaborations, including one with Oracle for Imagination’s MIPS architecture.

Analysts at Liberum said: ‘With the creation of this consortium and strong industry backing MIPS’ technology can be more widely adopted … We believe MIPS has good technology and Imagination’s ownership providers stability enabling customer to engage.‘

09.30: The Footsie pushed higher as the morning session progressed led by strength in heavyweight miners after a manufacturing survey in China suggested the slowdown in the world’s second largest economy is easing.

Investors were also relieved that minutes from the US Federal Reserve had shown that policymakers appear to be in no hurry to raise interest rates.

But Royal Mail was a big faller on competition fears as the privatised delivery firm failed to benefit from a sharp rise in annual operating profits.

After an hour and a half of trading, the FTSE 100 index was 19.4 points higher at 6,840.0, extending the previous session’s rebound after a recent assault on record highs stalled at the start of the week.

Amongst a big batch of UK corporate news today Royal Mail stood out, with its shares dropping 5 per cent or  31.7p to 543p, after chief executive Moya Greene highlighted intense competition in the parcels market and warned about the impact that delivery rivals such as TNT will have on the economics of the Universal Service unless Ofcom intervenes.

The company said operating profits after transformation costs were £430million, against £403million a year earlier.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers said: ‘The company’s clear concerns around Universal Service pricing have eclipsed an otherwise promising set of results.

‘The outcome of the Ofcom review could have a material impact on Royal Mail’s ability to sustain the profitability of the service, as competitors face few of the restrictions currently in place.

‘In addition, the ferocity of competition in the parcels space, still growing due largely to the continuing boom in e-commerce, comes as no surprise but was specifically referred to in management comments.

‘The share price gain, 74 per cent since the flotation last October, is largely the reason for the more recent cooling of expectations for Royal Mail.

‘Given today’s additional uncertainty provided in the management outlook, the consensus of the shares as a hold is likely to remain in place, given that the shares appear to be up with events,’ Hunter added.

But on the upside with blue chips, thisismoney owner Daily Mail & General was the top FTSE 100 riser, adding over 6 per cent or 51.5p at 886.0p after the media group confirmed plans for a flotation of its majority owned property website Zoopla with an in-line half-year results.

The float of the country’s second largest property  website after Rightmove follows the recent listings of online groups AO World and Just Eat, and the stock market float last year of property agent Foxtons.

The Zoopla offering will comprise the sale of secondary shares only, and it will have a free float of at least 25 per cent.

Peroni brewer SABMIller was also in demand, up 113p to 3.372.5p as it reported a better than expected 1 per cent rise in full year earnings and announced a new cost-cutting programme, aimed at saving $ 500million a year by fiscal 2018.

Elsewhere, shares in Mothercare surged 17 per cent – up 23p to 161.9p – after it said a recovery in fourth quarter trading had continued into the current period.

The retailer posted an annual loss of £26.3million but said its banks had given it greater flexibility by adding £100million to lending facilities.

08.30: The FTSE 100 has opened up 23.8 points at 6,844.9, boosted by expectations the Federal Reserve will continue to support the US economy and data showing a pick-up in Chinese factory activity.

Global shares rose overnight after minutes of the Fed’s last meeting reassured investors that policymakers would stick to their easy monetary policy stance.

While Fed staff presented several approaches to raising short-term interest rates, they said the discussion was simply ‘prudent planning’ and not a sign rate hikes would come any time soon.

Market watch: US Fed support for economy and positive China factory data lift stocks around the world

Positive sentiment on risk assets was also improved by a private survey showing China’s factory sector turned in its best performance in five months in May. The news helped to soothe scepticism in some quarters about the health of the world’s second-biggest economy and top consumer of metals.

The second estimate of UK first-quarter economic growth is due at 9.30am, but no revision from the original figure of 0.8 per cent GDP growth is expected.

The FTSE 100 closed up 19.04 points at 6,821.04 yesterday, as drugmaker AstraZeneca rebounded on the view that US giant Pfizer may yet pull off a successful bid for the Anglo-Swedish firm.

Stocks to watch today include:

UNILEVER: The firm is in advanced talks to sell its Ragu pasta sauce business to Japanese condiments maker Mizkan Group for more than $ 2billion, according to people familiar with the matter.

LLOYDS BANKING GROUP, RBS: Lloyds Banking Group is joining a class-action lawsuit against government-owned Royal Bank of Scotland, seeking £420million pounds over the bank’s handling of its £12billion rights issue, the Herald Scotland newspaper reported.

BP: The oil firm is seeking to limit costs related to the 2010 Gulf of Mexico oil spill by asking the US Supreme Court to review whether it must pay some businesses for economic damages without proof that the spill caused such losses.