FTSE 100 dragged lower as fears of fresh slump weigh on bank shares

HEIGHTENED worries over global economic growth, after more disappointing data from America and the UK, dragged Britain’s leading shares lower yesterday, with energy and banking stocks taking the biggest hit.

The FTSE 100 index closed down 66.96 points or 1.2 per cent at 5,742.03, extending its falls into a third straight session and reaching a new low point for the month from its 5,726.50 earlier low.

Weaker energy stocks were the main drag on the blue-chip index, with crude oil down almost 1.5 per cent as demand worries were exacerbated by the weak global data.

“A gloomy day as US jobless disappoints and UK house prices fell again,” said Mike Mason, trader at Sucden Financial Private Clients.

US weekly jobless claims fell last week but still missed forecasts, while the prior week number was revised upwards, raising fears that, after a period of improvement, the US jobs market could be showing signs of stalling.

Meanwhile, British house prices suffered their sharpest monthly fall in more than two years, mortgage lender Nationwide said, adding to concerns over the fragile nature of the UK economic recovery.

“Investors are also on edge ahead of tomorrow’s ECOFIN meeting, where debt will once again headline the show. It is widely thought that Greece will need to further restructure its debt. The FTSE’s approaching psychological support of 5,700 may, however, stem further selling for now,” SucDen’s Mason added.

European finance ministers meet in Copenhagen today and tomorrow.

Ahead of that meeting, UK banks were big fallers, extending a recent reversal after a good run, with Barclays the top blue chip loser, down 4.7 per cent.

Part state-owned lender Lloyds Banking Group shed 2.9 per cent. The Co-Operative Group raised doubts about its bid to buy 632 retail bank branches from Lloyds, as regulators put the proposed deal under scrutiny.

US blue chips were 0.6 per cent lower by London’s close, as the disappointing jobless data left investors wondering if the US economy can sustain the equity rally.

Clothing retailer Marks & Spencer was also a big blue chip casualty, shedding 2.9 per cent, while peer Next fell one per cent after Sweden’s Hennes & Mauritz – a stalwart of the British retail sector – posted a much smaller-than-expected rise in first quarter earnings.

Among the minority of blue-chip gainers, defensively perceived stocks stood out as investors’ risk appetite faded, with some corporate news also providing support.

International Power jumped 5.6 per cent as majority shareholder GDF Suez of France finally made an indicative 390p a share cash bid to mop-up the outstanding 30 per cent of the British firm it does not already own.

“We believe GDF Suez will have to raise their bid, but not by much,” said Espirito Santo Investment Bank analyst Lawson Steele, who has a “fair value” estimate of 415p on International Power, which includes a 10 per cent buyout premium.

Imperial Tobacco gained 1.5 per cent as the world’s fourth-biggest cigarette group said it saw strong sales and profit growth in the first three months of 2012 as conditions in Spain, Ukraine and the United States improved, with half-year sales up three per cent.

With just one trading session left before the month-end, the UK blue chip index is on course to post a fall of around 2.1 per cent in March, after a choppy month in which it rallied to its highest levels since July 2011, before dropping back.