Fears over Greek and Austrian banks send FTSE shares down

Britain’s leading share index shed 0.6 per cent yesterday, snapping a three-session rally with banks hit by some renewed sector caution, while oils and miners fell as a strengthening dollar weighed on metal prices.

At the close, the FTSE 100 was 29.57 points lower at 5,285.77 after having gained one per cent on Monday to end at its highest level in over a week.

“There has been little in the way of news flow to move shares today, with most of the blue chips confined to ranges of around two per cent in either direction,” said Philip Gillett, sales trader at IG Index.

Banks took the most points off the blue chip index, retreating after strong gains in the previous session amid fears about the strength of some European peers, as Greek banks fell back again and Austria’s sixth-largest bank was nationalised.

HSBC, Barclays, and Standard Chartered shed 0.8 to 2.5 per cent, but state-owned Royal Bank of Scotland and Lloyds Banking Group bucked the trend, gaining 2.1 per cent and 0.3 per cent respectively.

RBS rose after it said there had been no threatened mass resignations of the board, at any time, in relation to government threats to curb bonuses at the state-backed institution.

Energy stocks were weaker although crude prices steadied after a recent slide, with BP, Royal Dutch Shell, Tullow Oil and Cairn Energy losing 0.3 to 2.7 per cent.

Miners were lower after a choppy session, with silver miner Fresnillo losing 2.8 percent, while Antofagasta, Rio Tinto, BHP Biliton, Kazakhmys, and Lonmin shed 0.3 to 1.6 per cent.

Among individual fallers, British Airways fell 2.2 per cent as a decision by the airline’s crew to strike over Christmas and ongoing concerns about a £3.7bn hole in its pension scheme continued to hit sentiment in the stock.

“It looks like investors are happy to keep their powder dry over the next couple of weeks and take a fresh look at markets in the New Year,” Gillett said.

Defensive issues were the main blue chip gainers as investors looked for more risk adverse investments, led by beverages, with Diageo adding 1.2 per cent, while brewer SABMiller gained 0.1 per cent.

Utilities also found support, with Severn Trent, United Utilities, and gas distributor Centrica adding 0.5 to 2.5 per cent.

Contract caterer Compass Group was a good individual riser, up 1.2 per cent after Deutsche Bank upped its stance to “buy” from “hold”.

The UK blue-chip index is still up 19 per cent this year, having surged 53 percent since touching a six-year trough in March.

US blue chips were 0.2 per cent lower by London’s close after US producer prices rose more than expected, igniting fears of inflationary pressures, and as a key gauge of manufacturing activity in
New York State unexpectedly plunged in December.

The Federal Reserve started its latest two-day policy meeting on Tuesday and is likely to keep U.S. interest rates unchanged near zero, when it announces its decision after the London markets close today.

But all eyes will be on the Fed’s accompanying statement, especially after upbeat sales and jobs data have led markets to price in chances of a rate hike in the middle of 2010.

British consumer price inflation rose last month at its fastest annual pace since May, propelled by fuel prices, which rose last month but fell sharply in November last year.