FTSE falls as debt turmoil intensifies

BRITAIN’S top share index retreated yesterday, with nervous investors ditching riskier assets such as banks and retailers, as corporates showed signs of stress in the face of the intensifying debt contagion in Europe.

London’s blue chip index shed 85.88 points, or 1.6 per cent to 5,423.14, with the FTSE volatility index, up 10.2 per cent showing investors were more pessimistic about the economic outlook.

Banks fell 2.3 per cent as funding stress grew in the sector, with the Eurozone sovereign debt crisis seeping deeper into countries such as France and markets looking to the European Central Bank to take more dramatic action.

Banks were under pressure from the start of the day after Ratings agency Fitch voiced concern over US banks’ European exposure. That pressure intensified as Spain’s bond yields rose to unsustainable levels long-term following a bond auction.

Miners and integrated oils fell too, in tandem with weakening commodity prices as the uncertainty surrounding Europe’s debt crisis threatened demand in the sector.

BHP Billiton, the world’s biggest miner, fell 2.8 per cent as it turned more wary on the outlook for commodity markets in the face of tighter access to credit, but said conditions are not as bad as during the global financial crisis.

Traders said technical factors pointed to potential further downside for the UK FTSE 350 mining sector, with a move back to the mid-October lows around 18,700 possible, a correction of some eight per cent from the current levels of 20,360.

Commodities group Glencore, however, bucked the weak trend, rising 1.9 per cent as the firm said third-quarter activity in its closely watched marketing arm was “solid” despite slowing global growth.