By Kit Rees and Alistair Smout
LONDON (Reuters) - Britain's top share index dropped on Friday, taking the shine off a strong quarter, as miners fell and financials stocks eased on uncertainty over Deutsche Bank's financial health and as a spate of broker downgrades hit outsourcer Capita.
The FTSE 100 was down 0.3 percent at 6,899.33 points at its close, underperforming the broader European market.
UK banks were under pressure throughout the session on concerns about the stability of Deutsche Bank (DE:DBKGn), though they pared their losses after a surge in the shares of Germany's largest lender just before the market closed.
Investors had been concerned about a $14 billion demand from the United States to settle claims Deutsche Bank missold mortgage-backed securities, though worries eased after a media report said that an agreement to slash the fine was being discussed.
"If something happens to a bank as big as Deutsche Bank ... there is systemic risk. But for now, if the negative mood in the market can be managed, it shouldn't lead to anything more serious in the short term," London Capital Group's senior market analyst, Ipek Ozkardeskaya, said.
In all, FTSE 350 banks (FTNMX8350) were down just 0.2 percent, closing near session highs.
Commodities-related stocks were under pressure after oil prices fell on the back of a firmer dollar and some profit-taking following a rally on an OPEC production cut deal. The UK Mining sector (FTNMX1770) dropped 1.4 percent, while Oil & Gas shares (FTNMX0530) were 0.6 percent lower. [O/R]
The top individual faller was Capita (L:CPI), down 4 percent and slumping for a second straight day.
The outsourcer fell after a profit warning on Thursday and a swathe of target price cuts on Friday, making it the worst-performing stock in Europe this quarter, down more than 30 percent.
However, while Panmure cut the stock to "sell" from "hold", other analysts who had been bearish on the stock raised their ratings.
Goldman Sachs (NYSE:GS) removed the stock from its "conviction sell" list, upgrading it to neutral, although it slashed its target price for the outsourcing firm.
"We continue to see Capita suffering from lower organic growth dynamics in the UK over the next two year," analysts at Goldman Sachs said in a note.
"That said we think most of the concerns are now
priced in."
Among the top gainers, housebuilding stocks Barratt Developments (L:BDEV) and Persimmon (L:PSON) rose more than 4 percent with analysts citing a supportive broker note from Liberum, as well as data from Nationwide which showed that house prices continued to rise in September, albeit at a slower rate than in August.
Britain's FTSE was ended September up 6.7 percent for the quarter, with a monthly gain of 2 percent.
It was up for a second straight quarter, with its international exposure and sterling weakness helping to shield the index from the effects of uncertainty surrounding Britain's vote to leave the European Union.
The mid-cap FTSE 250 (FTMC), which has more domestic exposure, has rebounded strongly, up nearly 10 percent this quarter.