By Carla Mozee, MarketWatch

Pound moves back above $1.31

U.K. blue-chip stocks fell Friday, returning to negative territory after U.S. President Donald Trump said it was ready to impose tariffs on some $500 billion in Chinese imports, potentially ramping up his administration's trade dispute with officials running the world's second-largest economy.

The London benchmark marked its first loss in four sessions, but it still posted a win for the week.

How markets performed

The FTSE 100 index fell 0.1% to 7,678.79. On Thursday, the index rose 0.1% (http://www.marketwatch.com/story/ftse-100-holds-steady-as-traders-focus-on-retail-sales-data-2018-07-19). For the week, it booked an 0.2% advance, its second straight weekly gain.

The pound traded at $1.3105, recovering from an intraday low of $1.2995, and swerving up from $1.3015 late Thursday in New York. Sterling on Thursday sank below $1.30 to hit its lowest level against the greenback since early September.

Against the euro, the pound bought EUR1.1201, up from EUR1.1178 late Thursday.

What's drove the market

The FTSE 100 turned lower, falling alongside a drop in U.S. stock futures and European stocks, after Trump, in an interview with CNBC (https://www.cnbc.com/2018/07/19/trump-says-hes-ready-to-put-tariffs-on-all-505-billion-of-chinese-.html), said he's "ready" to put tariffs on all Chinese goods imported to the U.S., which would amount to more than $500 billion. Trump has previously said he's considering targeting another $200 billion in Chinese tariffs. China has issued retaliatory levies and Trump's latest threat could stoke further response from China.

Trump on Friday accused China of manipulating its currency, as a weaker yuan makes Chinese products cheaper for customers to purchase. The yuan fell by the most in two years after the People's Bank of China on Thursday guided the Chinese currency 0.9% lower by setting the dollar's reference rate at 6.7671 yuan.

(https://twitter.com/realDonaldTrump/status/1020287981020729344)

Read:Dollar tumbles as Trump calls China, EU currency manipulators (http://www.marketwatch.com/story/dollar-digests-trump-comments-as-traders-watch-yuan-action-2018-07-20)

The FTSE 100 had trudged higher earlier, aided by weakness in the pound against the U.S. dollar, but the dollar started to lose more ground following Trump's latest threat of more tariffs.

A lower value of sterling can help lift the FTSE 100 because many multinational companies listed on the index generate most of their sales in other currencies.

Sterling had been knocked down to 10-month lows after disappointing retail sales data on Thursday dampened hopes that the Bank of England will raise the benchmark interest rate from 0.5% at its meeting on Aug 2.

Traders also kept an eye on developments around Brexit, as European Union ministers met in Brussels to review the British government's latest White Paper proposals for the future relationship between the EU and the U.K. The EU's lead Brexit negotiator, Michel Barnier, said Friday the proposals over a post-Brexit single market and a customs union may run into legal barriers.

"There's no justification for us to create additional burdens on business just because the U.K. wants to leave," Barnier said.

What are analysts saying?

"Whether or not Beijing is intentionally steering its currency lower as a means of defraying the impact of punitive U.S. tariffs is unlikely ever to be clarified. However, market events remind everyone that the yuan is an effective pivot of global foreign exchange sentiment, with cross-asset tail risk, too," said Ken Odeluga, market analyst at City Index, in a note.

"Neither Washington nor Beijing appear ready to back off their stances in the trade conflict. Yet China has almost run out of levers in that sphere. Chances are rising that financial markets will become a new front," said Odeluga.

Stocks in focus

Mining stocks were hurt by prospect of worsening trade relations between the U.S. and China, which is the world's largest copper consumer. Shares of Glencore PLC (GLEN.LN) fell 1.6%, BHP Billiton PLC(BLT.LN) lost 1.5%, Anglo American PLC (AAL.LN) gave up 1.4% and Antofagasta PLC (ANTO.LN) shed 0.1%.

Unilever PLC (ULVR.LN) gained 0.7% to GBP43.62, with Jefferies and Berenberg each raising their price targets on the consumer brands company following its earnings report.

Decliners on the benchmark were led by pest-control services provider Rentokil Initial PLC (RTO.LN) and online food-delivery services company Just Eat PLC (JE.LN) as shares fell 1.9% and 1.7%, respectively.

 

(END) Dow Jones Newswires

July 20, 2018 13:17 ET (17:17 GMT)

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