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September 26, 2017

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London stocks, pound steadier after snap vote call triggers volatility

LONDON -- London's stock market flattened Wednesday following the previous session's sharp fall that had been triggered by a rallying pound after Britain called a snap general election.

The eurozone's main indices rebounded a little having also fallen heavily Tuesday, as investors look ahead to France's tight presidential election on Sunday.

"Following some turbulent trade yesterday the FTSE 100 and sterling are rather more subdued ... as markets digest the potential impact of the unexpected snap election going forward," said David Cheetham, chief market analyst at XTB trading group.

"The pound reacted positively to (Prime Minister) Theresa May's announcement yesterday and rallied strongly throughout the day to trade at its highest level against the U.S. dollar since early October."

With the FTSE 100 featuring many multi-nationals earning in dollars, the stronger pound sent the index closing down 2.5 percent on Tuesday — a reversal of recent months which saw sharp gains for the London stock market thanks to a slump for sterling.

"The British pound literally exploded after Theresa May took the market by surprise with her general election announcement," said Naeem Aslam, chief market analyst at Think Markets U.K.

"It was an unexpected event and no one had this on their dashboard. After her announcement, traders are anticipating that her victory would allow for a smoother Brexit."

In company news Wednesday, shares in luxury fashion brand Burberry slumped 5 percent to 1,614 pence as analysts predict a possible end to the group's recent run higher.

A trading update Wednesday showed the group's sales have grown thanks in large part to tourists visiting Britain taking advantage of sterling's drop.

"News of a snap U.K. election has seen a strong rally in the pound," broker Liberum said in a note to clients. "Should this continue towards polling day, Burberry's own forex-driven rally could disintegrate."

Asian markets mostly turned lower Wednesday following Tuesday's negative leads from Wall Street and Europe, with analysts saying Britain's shock decision to call a snap election added to global uncertainties.

The pound held onto its gains after May announced a snap poll for June 8 as she looks to cement a mandate heading into key Brexit talks with her EU counterparts.

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