Bailout buzz evaporates as FTSE 100 falls in the wake of Spanish rescue

BRITAIN’S top shares saw earlier sharp gains evaporate yesterday, ending the session lower, as euphoria engendered by a Spanish bank rescue package gave way to concerns over its long-term efficacy, as investors eyed the next hazards in the crisis.

The FTSE 100 index ended the session down 2.71 points, or 0.1 per cent, at 5,432.37, having earlier jumped to a session peak of 5,536.27 after Eurozone finance ministers agreed to lend Madrid up to €100bn following months of nervousness in financial markets.

The market’s initial advance was eroded by worry that the rescue will heap pressure on the country’s fast-rising public debt, whilst sluggish economic growth remains unaddressed, as investors awaited Greece’s general election at the weekend which could further dent market sentiment.

“The concern is, when you actually look beyond the headline figures, what really has changed, because there’s nothing in this bailout figure that doesn't basically make Spain’s debt position even worse,” said Michael Hewson, senior market analyst at CMC Markets.

“Basically it has to go on the sovereign balance sheet. Bond yields are now pushing back up again, and there are no growth measures; there has been no attempt to deal with the underlying structural problems within Europe.”

Mike McCudden, head of derivatives at Interactive Investor, meanwhile, said: “As expected the market has taken the Spanish bailout in the manner we are accustomed... buy the rumour sell the fact.”

Banks, earlier at the vanguard of the steep surge higher, pared gains to trade almost flat by the close as the realisation dawned that the Spanish bailout did little to change the fundamentals of Europe’s pressured economies.

Gains by energy stocks limited the FTSE 100’s losses, led by BP, up 1.4 per cent, after weekend press speculation that it would reach a deal to pay less than $15bn to settle its 2010 Gulf spill.

Tesco managed to trim earlier losses, ending the session flat, despite the world’s third-biggest retailer reporting a drop in quarterly underlying sales in its main British market.