Drax leads FTSE lower

Shares fell on Wednesday, led by Drax Group, amid new fears that the Bank of England may, contrary to expectations, raise interest rates on Thursday after its two day meeting.

Drax Group, which generates about 7 percent of the UK's electricity led the decliners, down 4.4 percent on a broker downgrade and traders said that faint speculation of bid interest had faded.

New fears that the Bank of England might raise interest rates this week depressed sentiment, although traders saw that as unlikely. Data on Tuesday showing a surge in input prices despite Britain's services sector growing more slowly than expected in August had fuelled some of the concerns.

The Bank of England raising interest rates may still be unlikely to happen but it has depressed the market this morning and people are worrying about it, a trader said.

By 12:01 p.m., The FTSE 100 index was down 29.5 points, or 0.49 percent, at 5952.9, on subdued volumes and in line with declines in continental European markets.

BA CLIMBS

British Airways was the top FTSE 100 gainer, up 1.3 percent on continuing talk of possible legal action against BAA for losses arising from terrorist alerts. It is benefiting from a lower oil price of just below $68 a barrel.

Among financials, Aviva rose 0.9 percent on a resurfacing of Generali bid speculation and Friends Provident was up 1 percent after HSBC upgraded it to overweight.

With the copper price unchanged amid a general decline in metals prices, miners were mixed. Kazakhmys was up 1.3 percent, which traders attributed partly to continued upbeat feeling about the planned IPO of Kazkh oil & gas company KazMunaiGaz's flotation on the Kazakh and London stock exchanges. Vedanta was up 1.5 percent, but BHP Billiton dropped 2.4 percent and Xstrata shares were down 2.2 percent. The company said earlier it was exercising its right to acquire all Falconbridge shares it did not already own at C$62.50 a share.

DSG International was also a heavy loser, down 2.9 percent, as investors took profits following strong gains in recent weeks after analysts said its reported 5 percent rise in like for like sales in the first 16 months of this year was not strong enough to sustain recent strong gains for the stock.

The results were very much in line, but the company's broker had upgraded numbers two weeks before and the shares had done well, so it was an excuse to take profits. The company has benefited from a positive cycle in plasma TV and there is some hint of a turnaround in white goods, which is encouraging, Barclays equity research associate William Hobbs said.

Among mid caps, shares in retailer Woolworths Group rose 4.4 percent after the Financial Times said the company could be broken up under a takeover plan devised by Icelandic investor Baugur.

Standard Life and Resolution looked set to enter the FTSE 100 index later this month after a quarterly rejig. Index compiler FTSE will formally announce the changes to the FTSE UK index series after the close of markets on Wednesday.