FTSE hits a three-week low as fears of debt contagion in Eurozone take hold


TAIN’S top share index closed lower yesterday, hurt by banks and commodity stocks as initial upbeat sentiment over Ireland’s bailout subsided, giving way to fears over potential problems in other Eurozone countries.

The FTSE 100 closed down 52 points, or 0.9 per cent, at 5,680.83, its lowest since October 29, retreating from 5,783.14 earlier in the session after Ireland agreed to a bailout by European partners and the International Monetary Fund.

Banks, also up earlier in the session, went into reverse. Royal Bank of Scotland, which traders said is the most exposed to Ireland through its Ulster Bank business, topped the blue-chip fallers’ list, off 4.6 per cent, while Lloyds Banking Group shed 4.2 per cent.

The European Union and the IMF agreed on Sunday to help bail out Ireland with loans expected to total €80-90bn to resolve its banking and budget crisis.

Market participants said investors were rattled by concerns that Ireland’s debt crisis might spread to other Eurozone countries, such as Portugal and Spain.

“Of course if Spain does get caught in the crosshairs, it’s going to be an absolute nightmare for Europe because it just can’t bail it out. It hasn’t got the facilities to bail it out,” David Morrison, market strategist at GFT Global, said.

Britain’s decision to commit around £7bn to help Ireland was met with mixed reactions, with the government finding it difficult to sell the policy decision to British taxpayers.

“We are doing this because it is overwhelmingly in Britain’s national interest that we have a stable Irish economy and banking system," said chancellor George Osborne.

Mining stocks slipped, following metals prices lower, on nagging fears of further tightening of monetary policy in China, the world’s biggest consumer of metals.

Integrated oil stocks, the top blue-chip performers earlier yesterday, fell, with BG Group down 1 per cent.

Interdealer broker ICAP dropped 2.7 per cent as broker Execution Noble cut its rating on the stock to “hold” from “buy”.

Invensys was also hit by a broker downgrade, shedding 1.8 per cent, as BofA Merrill Lynch cut its rating for the engineer to “neutral” from “buy” on valuation grounds.

Defensive stocks came into favour as investors switched out of sectors perceived as more risky, with utilities Severn Trent and Scottish & Southern Energy adding 1.4 per cent and 1 per cent respectively.

On the upside, TUI Travel rose 3.6 per cent to top the FTSE 100 leaderboard after a report said parent TUI was in talks with investor John Fredriksen over its stake in shipyard firm Hapag-Lloyd, traders said.

A report on Sunday in German newspaper Welt Am Sonntag said Hapag-Lloyd was in the process of appointing investment banks.

The news fuelled talk TUI could use the sale of its stake, or a portion of its stake, to fund further stake-buying in TUI Travel, traders said.