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Vedanta Resources and Cairn Energy lead FTSE 100 after Cairn India sale

The FTSE 100 moved deeper into the red in late afternoon as its losses extended from 0.1% to 0.5% mostly due to losses in the oil and gas, banking and mining sectors. Oil and metal prices moved higher in the morning, however, the most traded futures contract for US light, sweet crude for September delivery declined to US$75.45/barrel later in the day to wipe out its early gains, while base metals inched lower to weigh on the miners. Despite the reversal in the positive trend, oil prices are still on course to snap the four day losing streak that started last week.

The blue chip index was supported by M&A (mergers and acquisitions) activity after Cairn Energy (LON:CNE) sold a 51% stake in Cairn India to base metal miner Vedanta Resources (LON:VED) for £5 billion. Both companies were among the leading performers in the index with gains of over 3%.

Oil and gas companies and banks were a drag on the blue chips today, while the overall mood in the markets was rather pessimistic after Japan said that its GDP growth slowed to 0.4% in Q2 in the latest sign that the ongoing economic recovery is not as strong as previously though. Last week, the US Labor Department reported that initial jobless claims rose by 2,000 to five month highs of 484,000. A week prior to that, the US government said that non-farm payrolls declined 131,000 in the previous month, while June’s estimate of a 125,000 decrease in payrolls was revised to 221,000.

Both the Federal Reserve and the Bank of England (BoE) left their respective interest rates unchanged at the current ultralow levels last week. BoE governor Mervyn King said that the recovery would be choppy, while the bank slashed its GDP growth forecasts for the UK for 2011. The Fed announced that it would buy more US bonds to bolster the economy.

Investors are looking to the US data that is due to come out later today. This will include the Empire State manufacturing survey and the National Association of House Builders’ housing market index.

Vedanta Resources (LON:VED) and Cairn Energy (LON:CNE) led the way with gains of 3.5% and 3.2% respectively. Clothing retailer Next (LON:NXT) also did well, climbing 1.4%. Insurer Prudential (LON:PRU) was the only other FTSE 100 constituent to tack on more than 1%.

Royal Bank of Scotland (LON:RBS) was the heaviest faller in the index with a 2.1% loss. Defence and aerospace systems manufacturer BAE Systems (LON:BA) and oil and gas supermajor BP (LON:BP) were close, shedding more than 1.5%. Tour operator TUI Travel (LON:TT) declined 1.5%.