FTSE 100 dips on US GDP data, Dow Jones and S&P 500 seen lower - UPDATE

UK stocks fell sharply this afternoon after today’s US GDP report missed expectations. The Commerce Department said the US economy expanded at a 2.8 percent rate, while expectations were for three percent growth.

The FTSE 100 stood at 5,733 in early afternoon, down 62 points (1.05 percent) from Thursday’s close.

Losses in the UK's blue chip index were curbed by optimism that Greece is nearing a debt swap deal with its private creditors, which is key to securing more financial aid from the EU and the International Monetary Fund (IMF).

European Economic and Monetary Affairs Commissioner Olli Rehn said today that that the sides are very close to an agreement. According to Rehn, the deal could be finalised before the end of the month.

Early this week, Greece’s official creditors rejected an offer tabled by the Institute of International Finance (IIF), which represents the private bondholders, with the IMF calling for lower coupon rates on new bonds.

“While we think a deal will be agreed in the next few days the real market moving news would be if the ECB gets involved,” said analyst at forex.com Kathleen Brooks.

“We believe that if the ECB was to bow to pressure and take a loss on its holdings the impact on overall market sentiment could be very strong.

“If the ECB is willing to share the pain of debt restructuring in Greece instead of piling it all on the private sector then it may help sentiment in Europe’s bond markets, especially towards Portugal, whose bond yields have surged to multi decade highs.”

Clothing retailer Next (LON:NXT, up 2.5pct at 2,660p) topped the FTSE 100 leaderboard after getting a boost from better than expected results from peer John Lewis.

The department store reported a 6.9 percent surge in sales for the 25 week period ending January 21.

Other notable risers included Imperial Tobacco Group (LON:IMT, up 1.6pct at 2,290p) and cruise operator Carnival (LON:CCL, up 1.6pct at 1,931p).

Oil and gas supermajor BP (LON:BP., down 2.4pct at 465.25p) fell to the bottom of the FTSE 100 pile after a US court ruled it could not claim the full cost of the disastrous Gulf of Mexico oil spill from rig operator Transocean.

Investors also sold InterContinental Hotels Group (LON:IHG, down 1.5pct at 1,336p) after UBS reduced its recommendation of the hotel group from ‘neutral’ to ‘sell’.

Other notable fallers included mining majors Antofagasta (LON:ANTO, down 1.5pct at 1,369p) and Kazakhmys (LON:KAZ, down 1.3pct at 1,178p), retreating after Thursday’s strong rally.

US markets

Financial bookmakers are currently expecting a lower open on Wall Street on the back of the lacklustre GDP report.

Futures for the Dow Jones Industrial Average (DJIA) declined 60 points (0.45 percent) in pre market, while futures for the broader S&P 500 index were down seven points (0.5 percent).

Besides the GDP data, today’s macroeconomic calendar also includes the final reading of the University of Michigan consumer confidence index for January, which will be released later this afternoon.

On the corporate front, today’s earnings reports were mixed. While Chevron (NYSE:CVX) reported a US$200 million decline in net income to US$5.1 billion in the fourth quarter, Starbucks (NASDAQ:CBUX) topped expectations, saying earning rose 10 percent to US$382.1 million in the last three months of 2011.

UK corporate news

Back in the UK, other news in the top flight included a contract win by Serco Group (LON:SRP, down 0.5pct at 511.5p).

The outsources has secured a deal from the UK Ministry of Defence to provide training and support to the British Army prior to deployment on operations around the world.

Including an option year, the contract has a total value to Serco of approximately £55m through to December 2014.

In the FTSE 250, African Barrick Gold (LON:ABG, up 5.5pct at 516p) now has greater confidence in the Nyanzaga project in Tanzania following a fourfold increase in the resource estimate for the Tusker deposit.

Tusker is now estimated to hold a resource of over four million ounces (Moz) of gold including 3.48 Moz grading 1.47 grammes per tonne (g/t) in the indicated category and an inferred resource of 0.6 Moz at 2.05 g/t.

“This confirmation of the potential scale of the Nyanzaga project represents an extremely important step in the development of ABG as one of the leading gold companies in Africa and underpins our confidence in the future growth potential of the company,” said ABG chief executive Greg Hawkins.

Fellow midcap, banknote printer De La Rue (LON:DLAR, down 0.5pct at 962p), expects to hit its full year targets as its performance in the second half of the financial year has so far been in line with expectations.

Revenues at the currency divisions have continued to improve as order intake remained “good” and consistent with the first half of the financial year, which ended on September 24. The solutions division has also grown at the same pace as in the first half.

In the meantime, De La Rue said its improvement plan is progressing well and has resulted in further cost reductions and the early results of its revenues growth initiatives are also encouraging.