London Stocks Edge Higher on Upbeat Corporate Results

FTSE 100 closes at three-week low as yields climb

Market Overview and Key Drivers

FTSE 100 and FTSE 250 Performance

March 5 (Reuters) - The UK's blue-chip stock index reversed earlier gains to mark a three-week closing low on Thursday, as bond yields climbed on expectations that a jump in oil prices driven by the Middle East conflict will stoke inflation.

The FTSE 100 index fell 1.5% to close at its lowest level since February 12, while the FTSE 250 midcap index dipped 0.9%.

Bond Yields and Interest Rate Expectations

British government bond yields climbed sharply as investors further reduced their bets on a Bank of England interest rate cut this month. Interest rate futures were pricing in a one-in-four chance of a cut, down from around 80% a week ago.

Sector Highlights

Energy Sector

Energy giants Shell and BP each rose about 2% as oil prices jumped more than 3%, with the escalating U.S.-Israeli war with Iran disrupting supplies and shipping, driving some major producers in the Middle East to reduce output. [O/R]

Airline Sector

Airline stocks came under fresh selling pressure as surging oil prices pointed to higher fuel costs.

Individual Airline Performance

Wizz Air slumped 11.3% after the carrier flagged a 50 million euro ($58 million) hit to its net profit from the war in Iran. Shares of EasyJet fell 5% and British Airways-operator IAG dropped 3.6%.

Consumer and Homebuilder Stocks

Reckitt fell 5.8% after the maker of Durex condoms said it expected a challenging trading environment in Europe to continue, while homebuilder Taylor Wimpey lost 1.3% after it warned that profits would fall this year as build cost inflation and softer pricing squeezed margins.

Recruitment Sector

PageGroup tumbled 15% after the recruiter slashed its dividend, reported a sharp drop in annual profit and warned the outlook remained uncertain for the jobs market.

Economic Data and Outlook

Wage Growth and Employment

A BoE survey showed UK employers' expectations for wage growth held at their joint-lowest in nearly four years in February.

Construction and Services Sectors

Domestic economic data this week has been mixed. Activity in Britain's construction sector contracted for the 14th month in a row in February, in contrast to a more upbeat picture painted by the services PMI.

Notable Gainers

Rentokil was a bright spot, jumping 10.7% to lead the FTSE 100, after the pest control firm reported a rise in annual adjusted pretax profit.

Reporting Credits

(Reporting by Medha Singh and Sruthi Shankar in Bengaluru; Editing by Vijay Kishore, Kirsten Donovan)