Stronger than expected retail figures from the British Retail Consortium and higher than expected factory pricers from the PMI today sent a ripple of fear over London stocks that interest rates will not be cut this Thursday.

The FTSE 100 was down 72.8 at 6,313.8 by 10.27am, with banks, property stocks and retailers leading the way.

Rio Tinto was one of few stocks in the black in the FTSE 100 after the chairman of Baosteel, a Chinese steel giant, told a Chinese newspaper that he was considering a counterbid to BHP Billiton's $125 billion offer.

"The possibility of a takeover plan going ahead is very big,” Xu Lejiang said in an interview with 21st Century Business Herald, adding that it was important for Baosteel to have its own mines. But analysts were sceptical. The market value of Baosteel's listed arm is just $35 billion, making it too small to bid on its own.

Chinese steel manufacturers are very concerned over the concentration of iron ore into single hands that a BHP Billiton takeover of Rio would produce.

Mitchells & Butlers was the top faller, off 5 per cent at 518½p after Greene King today revealed that sales fell in the start of the second half, having slowed in the second quarter. Greene King lost 7 per cent to 760p. It also said it was now less keen on hiving off its properties into a joint venture but was still looking at all options, including creating a Reit, the option M&B is looking at.

Burren Energy was up nearly 1 per cent at £12.43 as hopes of a counterbid to ENI's £12.30 agreed offer refused to die.

Imperial Energy lost 9 per cent to £12.50 after it said it intended to issue $200 million of convertible bonds – equivalent to 10 per cent of its equity – to finance the acquisition of drilling rigs.

British Airways was down 5 per cent at 326p after Goldman Sachs issued a very negative note on the leading flag-carrier airlines. It had BA at 350p but warned that ticket prices would have to rise by 2 per cent to offset fuel inflation at a time when premium demand was set to fall as capital markets have weakened. "We believe that weakening demand could push stocks down further. Interest rate cuts would provide a more convincing buy signal in our view."

Northern Rock fell 5 per cent to 103½p and Alliance & Leicester was off 4.5 per cent to 690p.

DSG International fell 3.7 per cent to 109½p after Goldman Sachs reiterated its sell advice and cut its forecasts. It said: "Evidence is growing that consumer spending is under severe pressure and bigger-ticket items (TVs and computers) are at greatest risk. We note profit warnings from ScS Upholstery and Signet, and also Kesa’s comments regarding a slowdown in white goods sales across Europe." DSG is almost certain to be relegated from the FTSE 100 with the quarterly reshuffle next week.

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