Poor US housing data drags London market into the red

The blue chip index shed 68.46 points to 5178.52, or 1.3 per cent, following the 33 per cent fall, which came after a tax credit scheme to support the housing market expired at the end of April.

The US Commerce Department said single-family home sales tumbled to a 300,000 unit annual rate, the lowest level since the series started in 1963.

In addition, April and March sales figure was revised down to 446,000 units and 389,000 units respectively. The drop in sales in May unwound two months of gains, which had been inspired by a government tax credit for home buyers.

Prospective homeowners had to sign contracts by April 30 to qualify for the tax credit. Analysts polled by Reuters had forecast new home sales sliding to a 410,000 unit-pace. New home sales are measured at contract signing.

Wall Street's Dow Jones Industrial Average edged lower as markets also awaited the latest verdict on the recovery from the US Federal Reserve.

In London, attention on England's nervy World Cup win against Slovenia dampened volumes, with London Stock Exchange figures showing 4.2bn in shares traded – well below the 5.9bn average daily turnover seen in May.

Investors were also digesting George Osborne's emergency Budget, which helped the pound cheer to 1.49 dollars yesterday amid approval of the Chancellor's deficit tackling moves.

The currency was also helped after it emerged a member of the Bank of England rate-setting committee voted for a hike in interest rates earlier this month.

Andrew Sentance became the first policymaker to call for a tightening in monetary policy since Tim Besley in August 2008, with his surprise decision also helping sterling rally above 1.21 against the euro.

Elsewhere, there was some relief that Mr Osborne's emergency Budget was less severe on the business community than many had feared.

While VAT increased from 17.5 per cent to 20 per cent, the move was delayed until early January and contained no additional taxation on selected product areas.

A number of retailers were on the front foot, including Marks & Spencer with a rise of 21/2p to 3507/8p, fashion chain Next added 20p to 2190p, although B&Q owner Kingfisher lost early gains to stand unchanged at 2283/8p. Debenhams – rated a 'buy' by Investec – cheered 11/8p to 61p in the FTSE 250.

The sector also benefited from results by Comet chain Kesa Electricals, which returned to profit with a performance ahead of City expectations. With Bank of America raising its price target on the stock, Kesa lifted 21/4p to close at 1195/8p.

Elsewhere, BP shares lost more ground after sinking to their lowest point in 13 years at one stage on Tuesday. The stock, which has lost around 50 per cent of its value since the Gulf of Mexico explosion in April, fell 3/4p to 3331/2p after appointing board director Bob Dudley as the day-to-day head of the clean-up operation.

In the FTSE 250 Index, Stagecoach shares were higher after it revealed an improved trend and outlook for its UK rail division.

The South West Trains and East Midland franchise operator edged up 1/4p to 1903/4p, even though bottom-line profits fell 24 per cent in year to April 30.

The biggest Footsie risers were Reed Elsevier up 85/8p to 502p, Next, Tesco up 31/2p to 3961/2p and Cable & Wireless ahead 3/4p to 92p.

The four biggest fallers were Wolseley down 81p to 1481p, Barclays off 10p to 3003/4p, Lonmin down 54p to 1637p, and Segro off 81/4p to 2621/4p.