London Report: Banking stocks stop FTSE index edging ahead

FINANCIAL stocks kept a lid on the FTSE 100 yesterday after Goldman Sachs downgraded Royal Bank of Scotland.

While the FTSE 100 closed little changed, banks and insurers combined to take 6.1 points off the index, handing back most of the gains they made in the previous session.

Partly state-owned Royal Bank of Scotland fell 2.4 per cent to 331p on valuation worries after Goldman Sachs removed the stock from its conviction “buy” list and cut its rating to “neutral”.

Nomura was also cautious, estimating fair value for the UK lender at 285p, 14 per cent below its current market price.

The new head of the agency managing Britain’s bank stakes said RBS must address issues over capital and strategy before the government can start selling its shares.

Miners took 2.2 points off the blue-chip index, tracking weaker metals prices as traders said that concerns surrounding China’s economic reform agenda for the next decade could hit demand for basic resources.

Heavyweight healthcare stock GlaxoSmithKline fell 0.8 per cent after an experimental drug designed to combat heart disease failed to meet its main goal in the first of two big late-stage clinical studies.

London’s blue chip index shed 1.58 points to 6,726.79. The FTSE 100 has slipped from a five-month high of around 6,777.50 scaled in late October.

Valuations are a concern for stocks listed in Britain and elsewhere in Europe, which currently trade on price-to-earnings multiples above their longer-term averages.

“We are probably close to the top of the current valuation cycle, but we don’t expect a big decline in valuation metrics,” said Patrick Moonen, senior equity strategist at ING Investment management.

Pay-TV group BSkyB rebounded 1.3 per cent on bargain hunting following Monday’s sharp falls after it lost the rights to show Champions League football to rival BT.

Irish building supplies group CRH led FTSE 100 gainers, up 3.2 per cent after announcing a review of its business following a two per cent rise in third-quarter revenues.

BSkyB and CRH were among the most heavily traded stocks on the FTSE 100 around midday, each trading at around three-and-a-half times their 90-day daily average.