Fears for UK economy knock FTSE lower in volatile trading

AFTER yet another rollercoaster session, Britain’s top share index ended a touch lower yesterday, as upbeat US economic data proved a welcome distraction for investors gripped by concern over the UK economy and Europe’s debt crisis.

The UK benchmark closed down 8.42 points, or 0.2 per cent, at 5,509.02, after a session in which it swung more than 110 points – hitting a low of 5,450.24 and reaching a high of 5,562.91.

The index, which sold off heavily after a sharp rise in UK unemployment and a cut in growth forecasts by the Bank of England, regained its poise on US industrial output data supporting the case that the world’s biggest economy was in better shape than feared.

While financials, a barometer of investors’ view of the global economic outlook, remained under pressure, they managed to pare back some of their losses by the market close.

Fund management group Schroders ended 1.3 per cent weaker, with part state-owned Royal Bank of Scotland and insurer Standard Life both off 0.6 per cent.

Trading has been volatile, with the market swinging on developments relating to the Eurozone debt crisis.

Investors have been obsessively monitoring Italian 10-year bond yields, currently still above the seven per cent levels widely considered unsustainable.

“Sentiment on City trading floors remains muted as the political fiasco in the Eurozone leads to unprecedented levels of volatility on a virtually minute by minute basis,” Atif Latif, director of trading at Guardian Stockbrokers.

“Traders are complaining of low volume in order flow as the continued uncertainty leads to directionless markets, the death knell of any trading floor.”

Economic data out of the UK added to the gloom and uncertainty hanging over the markets and showed how much Europe’s debt problems are weighing on broader economic growth.

The UK’s jobless rate hit a 15-year high, as the number of young people out of work soared to a record of more than 1m, with the government blaming the Eurozone’s debt crisis for the figures.

ICAP fell 4.7 per cent, as the British interdealer broker said that Europe’s debt crisis impacted first-half earnings.

Ex-dividend factors also took a hefty 15.28 points off the FTSE 100, mostly accounted for by market heavyweight Vodafone, which traded without the attractions of a special dividend as well its half-year payout.

BSkyB, Marks & Spencer, J Sainsbury and Vedanta Resources also traded ex-dividend.

On the upside, Intertek rose 3.5 per cent as it reported an eight per cent underlying revenue rise.