Downgrade bombshell puts brakes on FTSE gains

The brakes were slammed on the recovery in European markets this morning after ratings agency Standard and Poor's warned 15 Eurozone countries - including Germany - that they were teetering on the edge of a downgrade.

Asian stocks and the euro fell after S&P piled pressure on a plan to solve the region's debt crisis to be hammered out at a summit later this week.

S&P said ratings could be lowered by one notch for Austria, Belgium, Finland, Germany, the Netherlands and Luxembourg, and by up to two notches for the remaining nine placed under review, including currently AAA-rated France.

The unprecedented warning brought to a halt a rally in global equities that began last week and had continued yesterday when the leaders of France and Germany agreed a plan aimed at guiding the region out of its two-year-old crisis.

In London the blue chip index nudged down in early trading as investors and analysts assessed the impact of the ratings bombshell.

HSBC was the biggest faller on the index, down 1.3 per cent, but was the only financial company to take a significant dip.

United Utilities was off by 1.3 per cent while Essar Energy and miner Rio Tinto were down by more than one per cent, as resource stocks were weighed down by concerns over growth.

BP chief executive Bob Dudley added to the gloom by warning that oil prices were at a high enough level to threaten global growth.

On the up side Lloyds continued to make progress, rising 2.8 per cent despite doubts over the leadership of the bank after chief executive Antonio Horta Osorio went on medical leave.

Building services company Wolseley was up 2.5 per cent after reporting a profits rise in the first quarter.

Other risers included software group Sage and Imperial Tobacco.

In UK economic news house prices fell by 0.9 per cent in November, mortgage lender Halifax said, although it expects the housing market to hold steady in the coming months.

Meanwhile British retailers last month suffered their biggest annual fall in like-for-like sales since May, as widespread discounts failed to lure in pre-Christmas shoppers, the British Retail Consortium said.

On global markets the Nikkei closed down 1.39 per cent and the Hang Seng 1.24 per cent as the Eurozone crisis once again sapped confidence.