Banks and miners hit by Greek jitters

WEAKNESS in banks and commodity stocks dragged Britain’s leading share index lower yesterday as the protracted search for a Greek bond deal and concerns about economic growth kept investors nervous.

The FTSE 100 index closed down 62.36 points, or 1.1 per cent, at 5,671.09, extending Friday’s falls and retreating further from Thursday’s six-month closing high.

The FTSE volatility index was also active, up over 10 per cent, its biggest daily percentage rise in a month and signalling an increase in risk aversion.

Banks were the biggest blue-chip casualties, hit by concerns that extra liquidity injections from central banks had not addressed the sector’s fundamental problems.

Credit Suisse reduced its recommendation on the European Banking sector to “underweight” as it said the direct earnings impact of the European Central Bank’s (ECB) late-December splurge of cheap, long-term cash for the banks appeared to be over-estimated.
Barclays was the UK sector’s biggest faller, down 4.2 per cent, while Lloyds Banking Group shed 4.1 per cent, and Royal Bank of Scotland fell 3.5 percent.

EU leaders met in Brussels yesterday, the first summit of 2012, to sign off a permanent rescue fund for the Eurozone – Britain’s biggest trading partner -- though the meeting was overshadowed by the unresolved Greek debt problems.

To avoid a chaotic default, which could have grave ramifications for sentiment and financial systems across the globe, Greece must secure a deal with its private bond holders and persuade international lenders it is serious about reforms.