FTSE weighed down by gloomy data, A&L writedowns

By Amanda Cooper

LONDON, May 13 (Reuters) - British blue-chip shares ended Tuesday's session in modestly negative territory, as grim UK economic data and writedowns at Alliance & Leicester ALLL.L hit banks, while fresh merger chatter buoyed the mining sector.

The FTSE 100 .FTSE fell 8.7 points to 6,211.9points, having tumbled earlier by as much as 1.3 percent.

Alliance & Leicester was the largest percentage decliner on the index, falling by more than 10 percent after the lender said it had taken a hit that analysts said could all but wipe out first-half profit and prompt a dividend cut.

Britain's consumer price inflation rate leapt by its biggest amount in nearly six years, to a full point above the central bank's 2 percent target, as food and fuel bills soared, while retail sales values fell for a second month in April.

This sort of data will force the Bank of England to weigh up the benefits of more rate cuts to boost the flagging British economy against a backdrop of surging inflationary pressures.

That said, the FTSE has proved to be one of the better performers among the major European national benchmarks this year. The index has lost about 4 percent this year, compared with a 10 percent loss in the pan-European FTSEurofirst 300 .FTEU3 and a 13 percent loss in Frankfurt's DAX .GDAXI

"It is proving to be very resilient considering the bad news we've had today, the inflation data, the weak retail sales and another writedown from Alliance & Leicester," said David Jones, chief markets strategist at IG Index.

"6,270-6,280 has capped the market for the last five days, so I think we need a decent break through 6,300 to shake off this sideways movement," he said, adding: "It's not making that much progress on the upside but there is still bullish feeling out there."

A&L HIT

Alliance & Leicester took a 192 million pound ($376 million) hit to profit from assets tarnished by the credit crunch, taking its profit in the first four months to below 2007 levels.

The bank, which warned in February it could leave its dividend unchanged in 2008, said on Tuesday it was still too soon to decide on the payout.

Among the banks, HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) shed 4.1 percent, Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) and Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) both fell 1.6 percent.

New BoE economic forecasts due on Wednesday will probably have a hawkish tone despite a slowing economy and may signal whether there is a risk of no further immediate interest rate cuts after this week's inflation data.

"The concern is we are now about to enter a period of high inflation and much slower growth," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.  Continued...