UKX FTSE 100 Index

By Carla Mozee and Sara Sjolin, MarketWatch

RBS declines after downgrade

U.K. stocks fell Monday, with lower oil prices and a ratings downgrade from J.P. Morgan weighing on investor sentiment.

The FTSE 100 index dropped 0.5% to close at 6,986.40, with only the financial group holding to a modest gain.

The index had started the week on stronger footing by rising as much as 0.7%, but that gain was eventually whittled down.

"An impressive set of [purchasing managers index] survey readings out of the eurozone has ensured that mainland European markets are outperforming their U.K. counterparts," said Joshua Mahony, a market analyst at IG, in a note.

"Particularly impressive data came from the manufacturing sector which seems to have staged an unlikely comeback, with eurozone, French and German manufacturing PMIs all hitting 2016 highs," he said. Read: Eurozone economy picks up speed in October (Eurozone%20economy%20picks%20up%20speed%20in%20October)

Meanwhile, the Confederation of British Industry said Monday that U.K. exports over the last quarter grew 8%, logging its highest balance since April 2014, aided by weakness in the pound, which has been slammed in the wake of the Brexit vote in June.

But 47% of 231 manufacturers that responded to the CBI's supplemental survey in October said sterling's fall since the referendum is "having a negative impact on their business." The CBI said 32% cited a positive impact and 19% said it was neutral.

J.P. Morgan Cazenove, in a note Monday, said a weaker British currency and large emerging market exposure has helped lift U.K. blue-chips higher this year. But now it's dropped its overweight call for the U.K. market (http://www.marketwatch.com/story/jp-morgan-gives-up-on-key-2016-call-and-turns-toward-europe-instead-2016-10-24), saying it's worried that drivers underpinning its overweight stance are starting to reverse.

The pound bought $1.2207, compared with $1.2229 late Friday in New York trade.

Movers: Commodity companies posted some of the biggest losses in London as oil futures slumped on signs that the production cut (http://www.marketwatch.com/story/oil-prices-fall-after-iraq-says-it-wont-scale-back-output-2016-10-24) proposed by the Organization of the Petroleum Exporting Countries could face more headwinds.

Shares of BP PLC (BP.LN) (BP.LN) dropped 1.2%, Royal Dutch Shell PLC (RDSB.LN) (RDSB.LN) lost 0.2% and mining major Anglo American PLC (AAL.LN) fell 2.6%.

Read:Why mining stocks are due for a 20% drop (http://www.marketwatch.com/story/why-mining-stocks-are-due-for-a-20-drop-2016-10-21)

Royal Bank of Scotland PLC (RBS.LN) (RBS.LN) gave up 1.1% as Investec cut the bank's rating to sell from hold.

RBS is in discussions with U.S. authorities related to a potential settlement over alleged mis-selling of mortgage-backed securities. But it appears that "RBS now faces a potentially even less favorable environment for conduct resolution," as Democratic nominee Hillary Clinton looks set to win the U.S. presidential election on Nov. 8.

"We think this may prove detrimental to RBS' negotiating position (and that of other banks under investigation)," wrote Investec analyst Ian Gordon, adding they have raised its incremental conduct charge forecast to GBP6.4 billion from GBP4.8 billion through the third quarter of 2016 to the fourth quarter of 2018.

Read:Banks planning to abandon U.K. in wake of Brexit, trade body warns (http://www.marketwatch.com/story/banks-planning-to-abandon-uk-in-wake-of-brexit-trade-body-warns-2016-10-24)

But a stronger performance came from easyJet (EZJ.LN). Shares rose 1.4% following an upgrade to buy from neutral at UBS, which said the shares this year "have materially derated and we think [they] look attractive."

The main concerns heading into 2017 are "around factors the company cannot control namely currency and oil movements as well as industry capacity," said UBS analyst Jarrod Castle in a research note. But easyJet "has both cost and capex levers it can pull".

On the midcap FTSE 250 , Cobham PLC shares (COB.LN) skidded 13% lower after the British defense contractor issued its second profit warning this year (http://www.marketwatch.com/story/cobham-sees-2016-results-below-own-expectations-2016-10-24).

(END) Dow Jones Newswires

October 24, 2016 12:04 ET (16:04 GMT)

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