GKN led the London market lower on Thursday amid concerns a trading update may disappoint high expectations.

Merrill Lynch cut earnings forecasts in advance of the update, due Monday, to reflect rising costs and disruption to auto production in Japan.

While the first-quarter performance from the engineer should match expectations, rising plastic and steel costs present powerful headwinds for the remainder of the year, analyst Celine Fornaro said.

On Japan, the broker estimated that component shortages were costing GKN £33m in turnover and £5m of profit per month. That, with weakening autos demand on both sides of the Atlantic, led Merrill to repeat an “underperform” rating.

GKN closed lower by 4.5 per cent to 200p, leading the blue-chip fallers. The stock had jumped by nearly 14 per cent since mid-March, helped by hopes of a positive capital markets day on Tuesday.

A second earthquake in Japan led the wider market to reverse Wednesday’s gains. The FTSE 100 closed down 0.6 per cent, or 33.76 points, to 6,007.37.

Vedanta Resources was weakest among the mining companies, down 2.6 per cent to £24.31 before a production update on Friday. Cairn Energy lost another 2.3 per cent to 446p after India’s decision on Wednesday to postpone sale of its Rajasthan operations to Vedanta.

Finnish nickel group Talvivaara Mining fell 6.9 per cent to 540p after cutting production guidance.

Among the gainers, BAE Systems edged up 1 per cent to 335p after Goldman Sachs took the stock off its “conviction sell” list. Goldman said the outlook for defence spending was continuing to deteriorate but saw more downside potential in shares of Finmeccanica, BAE’s Italian peer.

Banks remained in favour on expectations that the Independent Commission on Banking’s report due next week would be less onerous than feared. HSBC led the sector, up 1 per cent to 667¼p.

Carpetright and Halfords provided the day’s retail profit warnings. Carpetright dropped 5.9 per cent to 632p after cutting earnings guidance for the fifth time in a year, while Halfords retreated by 5.1 per cent to 350p after cautioning about profit margins and a weak performance for its Autocentre repairs business.

Bwin Party Digital dropped a further 14.7 per cent to 142p after it warned that its German betting operations may become unviable.

The company said it believed that proposed regulations did not comply with European Union law. Analysts questioned the argument.

Betfair, for whom Germany accounts for about 5 per cent of revenue, lost 3.2 per cent to 960p.

Aegis was down 2.6 per cent to 140½p after its chief executive, Jerry Buhlmann, said in a newspaper interview that the advertising group had £600m to spend on acquisitions.

Mr Buhlmann also reportedly confirmed that Vincent Bolloré, Aegis’s biggest shareholder, had given up on trying to buy the company.

Chipmaker CSR edged 0.1 per cent lower at 383¾p as analysts raised concerns that it may lose Research in Motion as a customer. Plans released on an industry website showed that the BlackBerry maker, which provided about 6 per cent of CSR’s sales last year, had switched to a Texas Instruments design for its new rival to Apple’s iPad.

Among small caps, D1 Oils headed the leaderboard. Shares in the biofuels group jumped 46 per cent to 3.13p on news that Siemens was conducting a trial to see how a high-speed ferry would run on turbines fuelled by a vegetable oil made from the seeds of the jatropha plant.

Traders said this was one of three trials for which D1 is supplying 70 tonnes of jatropha oil. Good results could lead to large offtake agreements for D1, a one-time darling of internet bulletin boards.

Bellzone Mining eased 0.7 per cent to 71½p, even though worries that a large block of stock was about to hit the market faded. For the past week rumours have swirled that 20m shares – about 3.2 per cent of the company – owned by the estate of Australian businessman Ken Talbot were set to be placed at around 70p. But Renaissance Capital said the Talbot Estate had no intention of selling at the moment because it saw significant upside, something echoed by Canaccord Genuity.

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