LONDON REPORT: FTSE:5,867.91 (–108.79) Mid-250:11,505.03 (–223.13) Small Cap:3,275.02 (–16.92)

UK STOCKS had their largest two- day drop in eight months, led by basic resource companies, as accelerating Chinese economic growth fuelled concern that the government will lift interest rates further to calm inflation.

EasyJet, Europe’s second-biggest discount airline, plummeted 16 per cent after forecasting bigger losses.

The FTSE 100 Index fell 108.79, or 1.8 per cent, to 5,867.91 at the close in London.

“Anything to do with tightening in China, the knee-jerk reaction in the market is to sell off the miners,” said Chris Rodgers, UK equities fund manager at Four Capital Partners in London, who helps manage £35.3 million.

China’s growth accelerated to 9.8 per cent in the fourth quarter as industrial production and retail sales picked up, adding pressure on policy makers to keep raising interest rates.

The expansion topped the 9.4 per cent median estimate in a Bloomberg survey of economists and compared with a 9.6 per cent annual gain in the previous three months, a statistics bureau report showed.

Consumer-price inflation eased to 4.6 per cent in December.

Citigroup and Credit Suisse say inflation may peak at as much as 6 per cent in the first half.

Xstrata declined 5.1 per cent to 1,388.5p after BHP Billiton said coal production fell because of the floods in Queensland, Australia.

BHP lost 3.6 per cent to 2,382p. Precious metals miners Kazakhmys and Fresnillo slid 5.2 per cent to 1,538p and 5.9 per cent to 1,346p, respectively, as silver dropped 3.7 per cent.

British Airways lost 1.7 per cent to 282.5p.

Man, the largest publicly traded hedge-fund firm, fell 2.4 per cent to 294.1p, after a single investor withdrew $1 billion from its long-only funds and analysts questioned whether performance fees will meet estimates in future quarters.

The unidentified investor pulled the cash because the client no longer wanted to hold European stocks, Man Group said.

GlaxoSmithKline fell 3.3 per cent to 1,151.5p after Morgan Stanley downgraded the stock to “underweight”.

Invensys dropped 7.8 per cent to 329.6p as the British maker of controls for Whirlpool washing machines said that third-quarter operating profit in its controls division retreated because of “softening demand”. – (Bloomberg)