Fresh Eurozone debt fears see FTSE plunge to two-month low

RENEWED concerns about the Eurozone debt crisis triggered a steep sell-off of Britain’s top shares yesterday, led by commodity stocks, with some analysts and investors seeing little on the horizon to tempt investors back into the market.

The FTSE 100 index ended at its lowest closing level since 23 March, off 112.60 points, or 1.9 per cent, at 5,835.89.

Fears of further sovereign debt crises were heightened after ratings agency Fitch downgraded Greece’s debt by three notches on Friday to ‘B+’, and rival Standard & Poor’s cut its outlook for Italy to “negative” from “stable” the following day.

Doubts about austerity measures in Spain added to the worries after the country’s ruling Socialist party was defeated in regional elections.

“It’s becoming less about Greece now and more about the contagion effect,” Michael Hewson, market analyst at CMC Markets, said.

“There’s also the fact that you’ve got these differences of opinion between ECB policymakers and European policymakers with respect to debt restructuring. The fact that it’s being openly discussed obviously brings into doubt the solvency of the ECB because they are a big big holder of Greek bonds.”

Miners were out of favour as copper prices fell, dented by the worries over Eurozone debt and weaker demand from top consumer China.

Anglo American was the worst off, down 4.1 per cent, while Antofagasta shed 3.9 per cent after China’s imports of refined copper declined more than 48 per cent year-on-year in April.

Integrated oil company stocks and banks also exerted heavy downward pressure on the blue-chip index, as investors rotated out of assets perceived as risky.

RISK OFF

The FTSE 100 volatility index, a barometer of investor anxiety, hit a two-month peak yesterday, up nearly 16 per cent. The higher the index, the lower investors’ appetite for risky assets such as stocks.

“I think there could be continued selling pressure as technically the FTSE and other European markets are starting to break down from their uptrends,” said Lex van Dam, hedge fund manager at Hampstead Capital, which has $500m of assets under management.

“To see the markets down another five per cent from here over the coming weeks would not surprise me.”

Travel stocks fell as a volcanic ash cloud from Iceland threatened to cause disruption to flights, with British Airways owner International Airlines Group (IAG) off 5.1 per cent, and tour operator TUI Travel 3.2 per cent weaker. IAG shares were also undermined by a negative read-across from Ryanair, which blamed high fuel costs and a lack of growth in capacity on flat earnings. Its shares fell 5.3 per cent.

Elsewhere, British Land slipped 2.8 per cent as both Panmure Gordon and Peel Hunt downgraded their ratings for the blue chip real estate group following its full-year results.

Next was one of only two gainers on the FTSE 100 yesterday, up one per cent, recovering from declines made in the previous session, with traders citing optimism ahead of peer Marks & Spencer’s full-year results today.

M&S slipped 0.5 per cent, outperforming the broader market.

Capita, was the other bright spot on the blue-chip index, up 1.6 per cent, as traders pointed to results from fellow outsourcer Mitie. Its shares rose five per cent.