FTSE falls to two-week low as chaos in Libya unsettles traders

THE top share index fell yesterday as tensions in oil producer Libya sent crude prices sharply higher and jolted investors out of riskier assets such as banks and miners.

The FTSE 100 index ended down 68.19 points, or 1.1 per cent, at 6,014.80, its lowest close since 4 February. It pulled back sharply after a break through the 6,100 level to hit a fresh 2011 intra-day peak of 6,105.77.

Volumes were light, however. The benchmark traded 71 per cent of its 30-day average, with the US market closed yesterday for the Presidents Day holiday.
“There’s a feeling of risk aversion in today’s trade. We’ve got a spike in oil and the gold price is heading higher as well. Oil prices, if they continue to rally, are going to have a negative effect on equities,” Angus Campbell, head of sales at Capital Spreads, said.

“Investors have definitely been in a ‘risk off’ mood today. Gold has been one of the most in favour markets, leaving aside the obvious surge in the price of oil. So far, the FTSE 100 index has only been knocked back towards last week’s lows, so it would be overdoing it to suggest a panic by investors. However, the closure of Wall Street for Presidents Day has not helped matters. Although US index futures are still trading, it is always difficult to get a feel for how sentiment will really be when New York reopens,” said David Jones, chief market strategist at IG Index.

Banks, which added 2.3 per cent last week after solid results in the sector including from Barclays, were the standout fallers. UK banks have risen more than seven per cent since the start of the year.

Lloyds Banking Group and Royal Bank of Scotland, set to report results later in the week, shed 4 per cent and 3.9 per cent respectively.

Miners also fell as investors’ risk appetite faded and after Beijing on Friday had raised banks’ required reserves by 50-basis points.

The FTSE 100 volatility index, a barometer of investor anxiety, rose 17 per cent yesterday. The higher the index, the lower investors’ appetite for risky assets such as stocks.

Libyan leader Muammar Gaddafi’s four-decade-old rule appeared in increasing jeopardy as anti-government protests reached the capital for the first time, leaving dozens dead at the hands of the security forces.

Precious metal miners Randgold Resources and Fresnillo, rose 4 and 2.9 per cent respectively as spreading unrest in the Middle East boosted the gold price and burnished the metal’s appeal as a safe haven.

But Henk Potts, equity strategist at Barclays Wealth, was upbeat on equities on a long-term view: “Investors should be trying to detach themselves from what still remains an unsettled macro environment because the corporate picture still looks very bright indeed,” he said.

Energy stocks fell, with the sector showing signs of fatigue after strong recent gains.

BP, down 0.3 per cent, said it had suspended preparations for drilling in Libya, but a spokesman added it was years away from production there.

BP also lined up one of the biggest foreign direct investments in India to date with a $7.2bn tie-up with the country’s Reliance Industries to explore for deepwater oil and gas.

Invensys climbed 3.7 per cent after the Observer newspaper reported on Sunday the British engineering firm was being eyed as a potential takeover target by several international rivals, citing “city sources”.