Banks steady FTSE but retailers dive

The FTSE 100 index saw modest rises this morning as banks performed well in stark contrast to the retail sector which was pulled down by a string of poor results from heavyweights including Tesco.

Investors were also digesting the results of a Spanish sovereign debt auction which showed yields going in a positive direction.

Spain issued five year bonds at a yield of 3.748 per cent down from 4.97 per cent at a comparative auction six months ago.

Meanwhile Fitch's warning of the collapse of the euro unless drastic action is taken and renewed talk of a cut in France's triple-A ratings, held back Asian markets and cast a shadow over trading.

And British industrial output posted a surprise fall in November as oil and gas extraction and electricity production were scaled back sharply.

Output shrank 0.6 per cent on the month in November, against forecasts for an unchanged reading.

RBS was the highest climber on London's blue chip index, up 5.5 per cent after announcing 3,500 job cuts in investment banking as part of a cost cutting strategy to get the lender back on track. Lloyds was up four per cent as the banking sector led advances on the market.

Fund manager Ashmore was another climber, up more than two per cent after reporting positive results despite the market volatility which has made business tough.

RSA Insurance and Cairn Energy were also both up more than two per cent.

The most significant loser was Tesco whose shares plunged by 12 per cent after it reported a disappointing trading update for Christmas and said making profit in the coming year would be tough.

Also in the sector, Morrisons dived by six per cent while Sainsbury's also edged down despite yesterday reporting strong sales over the festive period, particularly in food.

Home Retail Group was off by four per cent after warning that it would be forced to cut its dividend after a poor performance at its Argos chain.

B&Q owner Kingfisher was another to be hit by the gloom surrounding retailers and was one of the top five fallers, down just under two per cent.

However FTSE-250 listed online retailer Ocado bucked the trend and and jumped by 13 per cent after it said sales had climbed.

In Asia the Nikkei closed down 0.7 per cent and the Hang Seng 0.3 per cent.

Meanwhile in UK domestic economic terms the spotlight shines on the Bank of England's Monetary Policy Committee meeting later, but no change to British interest rates or the quantitative easing programme was anticipated.

The European Central Bank's monetary policy meeting will be another focus, with the ECB expected to hold rates steady at a record-low one per cent while pressing governments to strengthen efforts on the crisis.

Across the Atlantic later US December retail sales are due for release.

Investors will tomorrow be focusing on a bond auction in Italy.