London - Britain's top share index suffered its worst month in more than three years in May after data suggesting the US is struggling triggered a late sell-off on Thursday, and may be vulnerable to further declines as worries about the eurozone persist.
The FTSE 100 index gave up most of the strong gains it had recorded earlier in the day in late trading as a raft of US numbers raised concerns the pace of economic recovery in the world's largest economy was faltering.
The index was negative going into the closing auction, but ended 23.58 points, higher at 5,320.86 points, boosted by an after-hours recalculation of the index.
Index provider FTSE said on Friday that the recalculation occurred because of problems with data from a third party vendor.
The blue chip index finished the month 7.5% weaker, a third straight month of losses and the worst performance since February 2009.
"US figures indicate that the ISM numbers tomorrow will be quite poor and the nonfarm payroll data is going to be weak, indicating in many ways that the second-quarter US growth rate will be very lacklustre," said Gerard Lane, equity strategist at Shore Capital.
"There is some realisation that high oil prices in the first quarter caused the economy to slow. We have also got a deepening crisis in Europe. Until we see some policy resolution from the Europeans, I can't see the market making a sustained progress."
The index turned after data painted a gloomy picture. The pace of business activity in the US Midwest slowed in May, ADP private payroll growth rose only slightly last month, jobless benefit claims rose last week and economic growth in the first quarter came in lower than initially estimated.
"US Chicago PMI was rumoured to be a bad number and as soon as that was confirmed, we started to see investors immediately scale down their short term trading positions. ADP Employment numbers missed forecasts too," Citi Index strategist Joshua Raymond said.
According to earlier surveys, Friday's closely watched employment report for May is expected to show that nonfarm payrolls increased 150 000, up from a paltry 115 000 in April. However, investors were bracing for some disappointment after Thursday's private payroll numbers, analysts said.
Sectors linked to growth were among the worst decliners, with the UK mining index falling 0.9%.
Lane said UK consumer discretionary companies such as Next and Mitchells & Butlers were doing relatively well and were expected to continue outperforming in an otherwise poor equity market.
"Utilities in general are also a good place to go as they offer the right type of exposure when earnings risk elsewhere is rising."
Short-term players were more active in the market and were betting on volatility in cyclical stocks, traders said, adding the strategy was to quickly move in and out of the market to take advantage of sudden price moves based on news headlines.
That strategy was reflected by Anglo-Dutch IT services company Logica, which surged 69% after the company agreed to be bought by Canada's CGI Group for £1.7bn.
"What we are really seeing is the continuation of volatility. Those who are looking at shorter-term horizons are trading in cyclicals and looking to buy value stocks," Daniel Harris, director and head of dealing at H2O Markets, said.
Harris said a popular stock was Diageo, which had got both cyclical and defensive qualities. Over the past months, it has shown a strong uptrend and had not suffered too much even during a broader market correction the past weeks.
Diageo shares outperformed and ended 1.3% higher.
"Investors are looking at stocks with high beta and those that historically have shown good recoveries. Risk management would be the key in the current environment and a clear idea about stop losses would be essential as we could easily see a drop of 2% to 3% in a short span of time."
Charts continued to signal a bearish trend for the index.
"This longer-term downmove is still in place. If it starts to break through Wednesday's lows, that would suggest a bearish continuation on the daily chart and the index will be expected to retest a low of 5 250," Lynnden Branigan, technical analyst at Barclays Capital, said. "The bias is more on the downside."
Among individual movers, InterContinental Hotels Group rose 5.6% after US activist investor Nelson Peltz said his Trian Fund Management had picked up a stake of 4.27% in the world's biggest hotelier.