FTSE weighed down by gloomy data

That said, the FTSE has proved to be one of the better performers among the major European national benchmarks this year. The index has lost about 4 percent this year, compared with a 10 percent loss in the pan-European FTSEurofirst 300 <.FTEU3> and a 13 percent loss in Frankfurt’s DAX <.GDAXI > "It is proving to be very resilient considering the bad news we’ve had today, the inflation data, the weak retail sales and another writedown from Alliance & Leicester," said David Jones, chief markets strategist at IG Index.

"6,270-6,280 has capped the market for the last five days, so I think we need a decent break through 6,300 to shake off this sideways movement," he said, adding: "It’s not making that much progress on the upside but there is still bullish feeling out there."

A&L HIT

Alliance & Leicester took a 192 million pound hit to profit from assets tarnished by the credit crunch, taking its profit in the first four months to below 2007 levels.

The bank, which warned in February it could leave its dividend unchanged in 2008, said on Tuesday it was still too soon to decide on the payout.

Among the banks, HBOS shed 4.1 percent, Lloyds TSB and Barclays both fell 1.6 percent.

New Bank of England economic forecasts due on Wednesday will probably have a hawkish tone despite a slowing economy and may signal whether there is a risk of no further immediate interest rate cuts after this week’s inflation data.

"The concern is we are now about to enter a period of high inflation and much slower growth," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.

"But obviously, by not cutting interest rates any more, the risk is that the UK economy goes through a period of even slower growth and possibly flirts with recession, so what we can say is that the (Bank’s) Monetary Policy Committee is probably facing its toughest period since it was instituted.

"The (stock market) rebound has been based entirely on a perception that the worst is over and confidence might be returning. But as the economic slowdown gathers pace, I think it would be premature to say the worst is over," Batstone-Carr said. "One has to proceed with extreme caution at this moment."

Oil shares also reversed early gains to weigh on the index. The sector lagged as U.S. crude oil fell below $124 a barrel after the International Energy Agency cut its forecast for world oil demand growth and investors took profits after a rally to record highs the previous day.

BP fell 0.2 percent, while Royal Dutch Shell lost 0.4 percent. BG Group fell 3.7 percent, while Cairn Energy lost 3.8 percent and Tullow Oil fell 1.3 percent.

Among gainers, the mining sector rallied, reversing some of the previous session’s declines. Mining stocks were further supported in afternoon trading by fresh speculation in the market of a new bid by BHP Billiton for Rio Tinto . BHP declined to comment.

Rio Tinto shares rose as much as 5.3 percent to end the day with a gain of 3.7 percent, while BHP shares rose 1.4 percent.

Vedanta Resources rose 3.1 percent, while Xstrata gained 0.6 percent.

Imperial Tobacco added 1.6 percent after Morgan Stanley lifted its price target on the stock to 3,050 pence from 3,000 pence.

(Additional reporting by Rebekah Curtis, editing by Elizabeth Fullerton)