The London Stock Exchange building is seen in central London
By Sudip Kar-Gupta
LONDON (Reuters) - The top equity index had its biggest one-day decline in a month on Monday, retreating from a three-week high as a drop by housebuilders weighed on the market.
The blue-chip FTSE 100 index, which rose 0.7 percent on Friday to reach its highest point in around three weeks, closed down by 1.1 percent, or 72.71 points, at 6,622.84 points.
That was the FTSE's biggest one-day drop since a similar 1.1 percent decline at the close on March 7.
Housebuilding and property stocks slumped, even though the FTSE 350 Construction and Building Materials Index rose 23 percent last year and is up around 12 percent this year. Traders said the sector was weighed down by reports from the HomeOwners Alliance on Monday and the Sunday Times that rising property prices could form a bubble and make homes unaffordable.
"The property and housebuilding stocks are taking a hit on the back of these negative comments about the outlook for the sector," said Central Markets trading analyst Joe Neighbour.
Housebuilder Barratt Developments fell 5 percent, making it the worst-performing FTSE 100 stock in percentage terms, while rival Persimmon also slipped 4 percent.
Concern that corporate earnings were not strong enough to justify the ratings of companies on the FTSE 100 also hurt stocks. The FTSE 100 is trading on a 12-month forward price/earnings ratio of 13.2 times, compared with a five-year average of 11 times, according to Thomson Reuters Datastream.
"There are question marks about valuations," said Brown Shipley fund manager John Smith. "This year, stocks have to deliver earnings growth to justify the rating."
The FTSE 100 rose 14.4 percent in 2013 to post its best annual gain since 2009, and it reached a peak of 6,867 points in January this year, near its best level since early 2000.
It has since slipped back, amid a slump in emerging markets and tensions between Russia and Western powers over Ukraine, and Smith expected the market to remain trapped in that range in the near-term.
"There is not enough belief at this point in time to push the market higher," he said.
(Additional reporting by Tricia Wright; Editing by Larry King)