U.K. Stocks Drop Amid U.S. Budget Concern as SSE Tumbles

U.K. stocks fell as utilities retreated and U.S. politicians discussed a budget to prevent their government from shutting down next month.

SSE Plc and Centrica dropped more than 4 percent as Citigroup Inc. said rising energy prices may lead to government intervention. Carnival Plc (CCL) slid 6.7 percent as brokerages including Morgan Stanley and Natixis downgraded the shares. ICAP Plc (IAP) lost 1.8 percent after U.K. and U.S. authorities fined the broker $88 million on charges of rigging key interest rates.

The FTSE 100 Index retreated 19.93 points, or 0.3 percent, to 6,551.53 at the close in London. The equity benchmark has still risen 2.2 percent in September, extending its gain this quarter to 5.4 percent, as the Federal Reserve refrained from reducing its monthly asset purchases. The gauge has rallied 11 percent this year. The FTSE All-Share Index also slipped 0.3 percent today, while Ireland's ISEQ Index lost 0.1 percent.

"The political debate over energy prices introduces uncertainty about future prospects for suppliers should Labour come into power," said Richard Hunter, head of equities at Hargreaves Lansdown Plc in London. "The broader U.K. market is affected by the political posturing that has started in the U.S. about a potential shutdown of the government. In the absence of specific company news, we may see the markets tread water in the next few weeks."

Energy Prices

SSE Plc (SSE) slid 5.8 percent to 1,489 pence as Citigroup said in a note that the supplier of gas and electricity would suffer the most from price caps or other forms of government intervention because it gets 97 percent of revenue from the U.K.

Centrica Plc (CNA), the biggest energy supplier to U.K. homes, slipped 4.1 percent to 375.6 pence, the biggest drop since May 2010. Ed Miliband, the leader of the Labour Party, yesterday pledged to freeze energy bills if he wins the next general election. He added that rising prices have enriched power companies at the expense of consumers.

In the U.S., lawmakers have until Monday to approve emergency legislation to keep the federal government operating from Oct. 1, the beginning of the 2014 fiscal year, through Dec. 15. Failure to pass the bill may lead to a government shutdown.

A Commerce Department report showed that durable-goods orders gained 0.1 percent in August. The median forecast of economists surveyed by Bloomberg had projected a drop of 0.2 percent. Bookings for goods meant to last at least three years declined a revised 8.1 percent in July.

House Sales

A separate release showed that new house sales increased to a 421,000 annual pace last month. Economists had projected that sales of new residential properties would increase to 420,000, according to estimates compiled by Bloomberg.

Carnival dropped 6.7 percent to 2,106 pence as Morgan Stanley lowered its recommendation on the shares to underweight, which is similar to a sell rating, from equal weight. The world's largest cruise-ship operator has tumbled 12 percent since the close on Sept. 23, the biggest two-day decline since January 2012, after it unexpectedly forecast that it may report a loss in its fiscal fourth quarter.

"Carnival's early 2014 guidance implies a sluggish yield recovery and a step up in costs," Morgan Stanley analysts led by Jamie Rollo wrote in a note. "A major restructuring and/or cash return look unlikely as supports to the stock."

Separately, Natixis downgraded Carnival to reduce from neutral and Numis Corp. lowered its rating to hold from add. The company yesterday said fourth-quarter earnings excluding some items will range from a loss of 3 cents a share to a profit of 3 cents. Analysts on average had projected 9 cents a share, according to data compiled by Bloomberg.

ICAP Fine

ICAP, the world's biggest broker of transactions between banks, slipped 1.8 percent to 388.4 pence as U.S. prosecutors charged three former employees with fraud in a five-year international investigation into interest-rate manipulation.

The U.S. Commodity Futures Trading Commission asked the company to pay $65 million, while the U.K. Financial Conduct Authority fined it 14 million pounds ($22.5 million).

Tesco Plc (TSCO) dropped 3.5 percent to 360.9 pence. JPMorgan Chase & Co. cut its rating on the shares to underweight from neutral, meaning that investors should hold less of the shares than are represented in benchmark indexes. The brokerage cited weak same-store sales and said that initiatives such as 'Double Clubcard Points' in 2010 and the 'Price Promise' in 2013 have had limited success.

Travis Perkins Plc gained 2.3 percent to 1,661 pence. UBS AG raised its recommendation on the shares to buy from neutral, citing the company's high exposure to the U.K.'s economic recovery.