FTSE hit by German ban on shorting

BRITAIN’S top shares fell steeply yesterday, as commodity-linked stocks and banks were hit by Germany’s attempt to stop speculators driving down the euro, bonds and share prices by limiting short-selling.

The FTSE 100 closed down 149.26 points, or 2.8 per cent, at 5,158.08, having added 0.9 per cent on Tuesday, as Germany’s move shook markets across the globe, leaving investors uncertain as to whether other countries might follow suit.

Germany banned naked short sales of euro-denominated government bonds, credit default swaps based on those bonds and shares in the country’s 10 leading financial institutions in a move that appeared to catch its partners in the European Union off guard.

Commodity-linked equities dropped as investors took money out of risk-sensitive sectors. Miners Rio Tinto, Xstrata, Lonmin, Kazakhmys and BHP Billiton fell 5.4 to 7.5 per cent.

Energy stocks were lower as crude fell below $69 per barrel, with BG, BP and Royal Dutch Shell down 2-2.5 per cent.

The FTSE 100, whose weighting is dominated by commodities and banks, is down 4.7 per cent on the year and 12 per cent off its 2010 high hit in mid-April, weighed by fears over the euro zone.

The US Dow Jones Industrial Average and the S&P 500 fell for a second consecutive session as the moves by Germany weighed on sentiment.

In the UK, risk-sensitive banks were also lower. Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group fell 1.9-5.1 per cent.

ICAP, the world’s biggest interdealer broker, fell 4.2 per cent, paring Tuesday’s gains as it reported a good start to its financial year, but with investors wary of what impact any further trading regulations may have on business.

British credit information firm Experian outperformed the wider UK market, falling 0.5 per cent after upping its dividend and topping forecasts with its results.

Defensive stocks fared better with drugmaker GlaxoSmithKline the only riser on the index up 0.4 per cent.