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FTSE 100 falls after Italian bond auction

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The FTSE 100 fell today as traders sold stocks amid caution ahead of tomorrow’s key auction of Italian debt. The UK’s blue chip index stood at 5,453 at midday, down 20 points (0.4 percent) from Tuesday’s close.

Today’s sale of short term notes y Italy produced mixed results. While the euro zone’s third largest economy hit its target of €6.5 billion, yields on its one year bonds jumped to nearly four percent compared with the 2.34 percent paid at the previous sale last month.

Italy will hold another auction tomorrow, looking to sell €4.5 billion of medium and long terms bonds.

Euro zone countries have seen their borrowing costs rise this week amid speculation that Spain could have to ask for a full bailout despite securing €100 billion from the EU to shore up its banking sector. 

In other news, Eurostat today reported that industrial production in the euro zone declined 0.8 percent in April from the previous month compared with a 0.4 percent decline in the EU.

Importantly, production fell two percent in Germany, currently the largest economy in the monetary union.

The markets are now looking to the crucial elections in Greece, which will take place this Sunday.

“There is a good chance of a major relief rally post the Greek election if the Greek people vote for a pro-bailout party as it may erase the tail risk that Greece will leave the currency bloc in a disorderly way,” said analyst at forex.com Kathleen Brooks.

“Remember, the markets love certainty so if the currency bloc is more likely to stay as it is with all of its current members in toe that is good news for risk appetite.”

Engineering group IMI (LON:IMI, down 4.2pct at 833p) slid to the bottom of the FTSE 100 pile along withSainsbury’s (LON:SBRY, down 3.4pct at 281.2p).

Shares in the grocer were hit by today’s disappointing first quarter figures, which showed that its like for like sales rose 1.4 percent in the 12 weeks to July 9, which was a slower growth rate than expected.

Investors also sold mining stocks after a senior figure at the China Center for International Economic Exchanges, which advises the Chinese government, said growth in the world’s second largest economy could be below seven percent in the current quarter.

The government has set a 7.5 percent GDP growth target for the current year.

Xstrata (LON:XTA, down 3.7pct at 933.7p) was the heaviest fallers in the sector, followed by Vedanta Resources (LON:VED, down 3.1pct at 910.5p) and BHP Billiton (LON:BLT, down 1.6pct at 1,763.5p).

Other notable fallers included steelmaker Evraz (LON:EVR, down 3.1pct at 258.3p) and quality and safety groupIntertek (LON:ITRK, down 2.8pct at 2,593p).

Mining group Fresnillo (LON:FRES, up 2.7pct at 1,467p) went against the tide following a surge in precious metals prices.

Pharmaceutical group Shire (LON:SHP, up 1.5pct at 1,906p) and interdealer broker ICAP (LON:IAP, up 1pct at 350p) also made the leaderboard this afternoon.

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