London stocks weighed down by financial sector, bond yields

The blue-chip FTSE 100 dropped 0.2% on Tuesday, after hitting a more than seven-month high earlier in the session, while the mid-cap FTSE 250 index was down 0.9%

London stocks started the year on a sombre note, weighed down by losses in the financial sector and as UK government bond yields jumped to two-weeks high.

The blue-chip FTSE 100 dropped 0.2% on Tuesday, after hitting a more than seven-month high earlier in the session, while the mid-cap FTSE 250 index was down 0.9%.

Yields on the benchmark 10-year government bond increased more than 15 bps to 3.695%, hitting an over two-week high, tracking moves in U.S. Treasuries as investors moved away from higher risk assets.

The investment banking and brokerage services index led the losses with a 2.2% drop, closely followed by a 1.9% drop in life insurance stocks.

In the meantime, the FTSE 100 completed its 40th trading year.

The headline index has made almost no progress since the start of the century, and in the past decade the Footsie has been completely eclipsed by the U.S. stock market, said Laith Khalaf, head of investment analysis at AJ Bell.

Top performer pharma and biotech shares climbed 1.7%, supported by a 1.8% increase in AstraZeneca after the drugmaker's respiratory syncytial virus (RSV) immunisation for infants developed with Sanofi got approval in China.

Oil and gas shares gained 0.4% as crude prices rose on the prospect of Middle Eastern supply disruptions after a naval clash in the Red Sea.

Fundamentally, while supply continues to outstrip demand, the increasing hostilities in the Red Sea are raising concerns and providing support, said David Morrison, senior market analyst at Trade Nation.

Among individual movers, Marks and Spencer gained 1.3% after Exane BNP Paribas raised the retailer's stock rating to "outperform" from "neutral".

Britain's manufacturing sector suffered a setback in its recovery efforts as output and employment dropped more sharply in December than in the prior month, as per a survey.

Another set of data showed prices charged by British store chains increased at the slowest pace in a year and a half in December, an industry group said.