FINANCIALS pressured Britain’s top share index yesterday as concerns over Royal Bank of Scotland’s exposure to Ireland’s debt troubles weighed on the bank, and ICAP fell after a downgrade from BofA Merrill Lynch.
Weakness among financials offset gains in commodity-linked assets, which rallied after strong data from China, the world’s biggest consumer of raw materials, while upbeat results lifted telecoms provider BT.
The FTSE 100 closed down 1.71 points at 5,815.23 yesterday, after it closed down one per cent lower the day before.
“The rally we have enjoyed over the past few months looks to be stalling as the situation in Europe is getting more and more unsettling for investors,” Angus Campbell, head of sales at Capital Spreads, said.
RBS, down 2.7 per cent, was the biggest faller in a weaker banking sector with traders citing worries over the British state-backed bank’s exposure to Ireland's sovereign debt problems.
RBS has the second biggest exposure, €5.020bn (£4.247bn), to Irish sovereign debt, based on data supplied to regulators under a stress test conducted in July.
Ireland warned yesterday that a surge in its borrowing costs to record highs had become “very serious” and the EU said it was ready to act.
RBS’s Irish business, Ulster Bank, made a loss of £176m in the third quarter.
Interdealer broker ICAP fell 4.1 per cent after Credit Suisse cut its rating to “neutral” on valuation grounds.
FTSE 250 peer Tullett Prebon shed 7.2 per cent, hit by sentiment surrounding ICAP’s downgrade and worries over trading update on Friday, an analyst said.
Private equity firm 3i Group dropped 2.7 per cent as it reported higher first-half earnings, with Oriel Securities downgrading on the back of recent gains.
Elsewhere, British Airways slid 3.2 per cent after the union representing its cabin crew suspended a ballot on an offer the airline hoped would end a year-long dispute.
Last month, the Unite union said it would ballot staff on the new offer from BA, which addressed one of the main remaining sticking points, the removal of travel concessions for workers who had gone on strike.
The union had indicated it would recommend staff vote to support the deal, but it said its cabin crew representatives had now changed their mind.
BA said when it made the offer that it believed the deal was fair and could resolve the dispute which began last November when the airline announced it was cutting crew pay and reducing staffing.
Mining and energy stocks tracked gains in commodities following strong industrial production figures from China.
The sector was also boosted by a bullish note from BofA Merrill Lynch, which upgraded its ratings on Antofagasta, Xstrata and Kazakhmys who were among the best performers, up 3.7 to 4.8 per cent.
“QE [quantitative easing] and dollar debasement figure big in our latest global commodity review. We factor in higher commodity prices across the board with copper as a key winner,” the broker wrote in a note.
“We also see concerns on Chinese growth as overdone ...,” the broker said.
Second tier Ukrainian iron ore miner Ferrexpo jumped 10.8 per cent after unveiling a $647m (£401m) expansion plan to boost output by 40 per cent in three years.