After a range-bound morning session, markets sunk into the red on Wednesday afternoon as investors reduced their appetite for risk ahead of the Federal Reserve policy decision later this evening.
The FTSE 100 closed 11.35 points lower at 6,558.82, the index's second day in negative territory after hitting a six-week high of 6,622.86 on Monday.
"It seems investors are no longer expecting officials to miraculously announce the continuation of stimulus measures to the same extent and are now coming to terms with fact that tapering is now a very likely possibility," said Shavaz Dhalla, a Financial Trader from Spreadex.
"Thus, it seems the trepidation within the markets at present is more centred around how much of the stimulus package will reduce, instead of fixating on whether there will actually be a reduction."
Markets await FOMC decision
The Federal Open Market Committee (FOMC) meeting comes to a close later this evening and will be one of the most closely-watched US policy decisions in recent years, given rising expectations that policymakers will begin to scale back quantitative easing.
The Fed is widely expected to start by tapering its monthly asset purchases by around $10-15bn from the current level of $85bn, with forecasts being pared slightly over the last month given recent mixed economic data as of late, including August's disappointing jobs report.
Just as important will be the new set of macroeconomic projections which the monetary authority will provide. These may help to cement expectations that policy rates are to stay low for quite some time yet.
MPC vote unanimous
The minutes of the Bank of England's Monetary Policy Committee (MPC) meeting released this morning showed that policymakers voted unanimously to leave interest rates and stimulus unchanged, as expected.
The unanimous vote suggests that MPC members were content with how the economic recovery is going, given that two voters had previously been in favour of an expansion of quantitative easing (QE) at the August meeting.
"Given the current strengthening in the economic environment, we only consider a restarting of QE to be feasible in the event of a negative shock to demand, which while not impossible, is not our central case," said Analyst Philip Shaw from Investec.
FTSE 100: ARM jumps on Intel rumours
Chip designer ARM Holdings was the standout performer by the close of trade, surging late on the back of market chatter surrounding a possible bid from larger rival Intel.
Engineering firm Smiths Group was a high riser after raising its full-year dividend by 4% and returning £118m to shareholders by way of a special dividend as annual results came in slightly ahead of analysts' estimates.
Banking group Lloyds was among the best performers, rebounding after a sharp fall yesterday. The government on Tuesday placed a 6% stake as it formally began the process of disposing its stake following the state bailout in 2008. Standard Chartered, HSBC and RBS were also higher.
Sector peer Barclays was trading without the right to buy shares
in its £5.95bn rights issue. Shares were still trading above their theoretical ex-rights price (TERP) of 276.2p. Standard Chartered and HSBC were also higher.
Antofagasta, Melrose and Petrofac were all trading lower this morning after going ex-dividend, meaning that from today investors won't be able to get their hands on the companies' latest payouts.
Security solutions group G4S was in the red after Jefferies International trimmed its target price for the stock from 310p to 290p. While the broker maintained its 'buy' rating, it said: "The G4S equity recovery story is not as financially or operationally geared as we would like."
FTSE 250: Imagination Tech rises on "steady progress"
Imagination Technologies continued to rise one day after reporting a confident outlook on the basis of royalty growth and steady licensing. JPMorgan reiterated its 'overweight' rating on the stock today, saying that the company is making "steady progress in all divisions". M&A chatter regarding sector peer ARM could have also given the stock a boost.
Ocado shares continued their recent rise, which analysts at the Motley Fool website attributed to "good momentum" after recent struggles and its deal with supermarket chain Morrison, which provided it with an injection of cash.
British housebuilder Redrow gained after revealing a stellar set of full-year results and recommending the return of a final dividend. The group said pre-tax profit surged 63% to £70m for the year to June 30th and adjusted earnings per share jumped 45% to 15.7p.
Ladbrokes was among the worst performers after going ex-dividend, alongside IG Group, Dunelm, Kier, Renishaw, Interserve, and Computacenter.
FTSE 100 - Risers
ARM Holdings (ARM) 984.00p +3.20%
Smiths Group (SMIN) 1,412.00p +2.62%
Lloyds Banking Group (LLOY) 76.25p +2.14%
Tesco (TSCO) 378.30p +1.86%
Standard Chartered (STAN) 1,514.00p +1.37%
Royal Bank of Scotland Group (RBS) 365.50p +0.83%
Pearson (PSON) 1,286.00p +0.70%
Croda International (CRDA) 2,678.00p +0.64%
Rolls-Royce Holdings (RR.) 1,096.00p +0.64%
Experian (EXPN) 1,208.00p +0.58%
FTSE 100 - Fallers
Aberdeen Asset Management (ADN) 367.30p -3.47%
Fresnillo (FRES) 1,008.00p -3.17%
Persimmon (PSN) 1,112.00p -2.97%
InterContinental Hotels Group (IHG) 1,835.00p -2.91%
Petrofac Ltd. (PFC) 1,349.00p -2.81%
Whitbread (WTB) 3,012.00p -2.49%
Antofagasta (ANTO) 860.50p -2.44%
Land Securities Group (LAND) 901.50p -2.06%
G4S (GFS) 252.50p -2.06%
Carnival (CCL) 2,401.00p -1.80%
FTSE 250 - Risers
esure Group (ESUR) 244.50p +4.49%
Imagination Technologies Group (IMG) 348.90p +4.27%
Ocado Group (OCDO) 403.30p +4.21%
Redrow (RDW) 236.50p +2.47%
Betfair Group (BET) 1,101.00p +2.42%
Wetherspoon (J.D.) (JDW) 746.50p +2.19%
United Drug (UDG) 336.00p +2.13%
BTG (BTG) 384.30p +1.94%
Go-Ahead Group (GOG) 1,630.00p +1.81%
Synthomer (SYNT) 240.00p +1.69%
FTSE 250 - Fallers
Hochschild Mining (HOC) 206.40p -10.07%
Salamander Energy (SMDR) 122.70p -4.59%
African Barrick Gold (ABG) 135.80p -4.43%
Supergroup (SGP) 1,148.00p -3.93%
Ladbrokes (LAD) 193.60p -3.78%
Berkeley Group Holdings (The) (BKG) 2,054.00p -3.66%
Keller Group (KLR) 1,062.00p -3.37%
National Express Group (NEX) 265.20p -3.28%
Bellway (BWY) 1,333.00p -2.91%
IG Group Holdings (IGG) 588.50p -2.65%