Fears over turmoil in Egypt weigh on FTSE as banks fall

WORRIES over the impact of the political unrest in Egypt saw Britain’s top share index fall yesterday, but losses were limited by gains from heavyweight energy issues as the crude price firmed.

At the close, the FTSE 100 index was 18.43 points, or 0.3 per cent lower, at 5,862.94, having shed 1.4 per cent on Friday when worries over the situation in Egypt intensified.

“Unsurprisingly, the situation has hit travel firms hard, with both TUI Travel (-2.69 per cent) and International Airlines Group (-2.30 per cent) among today’s losers. Right now December’s rally seems to be a distant memory and market confidence is fragile. While the situation in Egypt has taken attention away from the Eurozone crisis, we shouldn’t forget that this is still out there, with figures released today showing Eurozone inflation in January has jumped more than the ECB’s initial forecast, giving rise to speculation that the ECB will have to raise interest rates sooner than later,” said Will Hedden, sales trader at IG Index.

Protesters further stepped up their campaign yesterday to force Egypt’s President Hosni Mubarak to quit as world leaders struggled to find a solution to a crisis that has set a fire under the Middle East’s political map.

Travel firms were big fallers, with traders citing worries over the disruption caused by the protests in Egypt and the impact of a strong crude price. Tour operator TUI Travel shed 2.6 per cent, with mid cap peer Thomas Cook down 3.1 per cent, and International Consolidated Airlines Group losing 1.8 per cent.

Risk-sensitive banks were a drag on the blue chips as investors remained nervous about the global picture, with RBS falling.

BG Group rallied after sharp falls on Friday as it said it has suspended drilling in Egypt but gas production remained normal.

Traders highlighted the greater impact of BG’s recent new oil discovery in the Santos Basin, offshore Brazil.

“BG Group remains a dark horse among leading FTSE 100 oil & gas explorers even though the ongoing exploration developments in the massive Santos Basin should be uppermost on trader's radar,” said Andrew Gibson, head of research at Galvan.

“Rising tensions in Egypt set the tone for the FTSE as an early drift lower saw the UK index slide over one per cent. Investors seemed spooked by the scale of the protests and the increasing uncertainty over the leadership in Egypt,” said Giles Watts, head of equities at City Index speaking yesterday.

But BP bucked the firmer oil sector trend, shedding 0.4 per cent, ahead of its fourth-quarter results due today.

There were concerns over BP’s dividend, as Russian shareholders in its TNK joint venture convened to consider withholding the $1.8bn payment.

Miners rallied led by Xstrata, up 2.2 per cent, excited by merger activity among US coal miners.

Massey Energy agreed to a $7bn takeover offer from Alpha Natural Resources.

US blue chips were 0.2 per cent higher by London’s close as merger activity, and solid earnings from Exxon Mobil, helped offset concerns about the unrest in Egypt.

Among individual gainers in London, Rexam added 2.1 per cent after the can maker signed a contract in North America and a long-term deal with its largest customer in Brazil.