FTSE at lowest level in three months as bank shares drop

WORRIES about the global economy pushed Britain’s top share index to its lowest close in three months yesterday as spiking risk aversion hammered banks and miners while energy stocks fell on weaker commodity prices.

The FTSE 100 ended 113.84 points or 2.2 percent lower at 5,139.31, its lowest close since 5 November, having snapped a three-session winning streak on Wednesday, shedding 0.6 per cent.

Banks were the biggest drag on the index. Heavyweight HSBC, Royal Bank of Scotland, Barclays and Lloyds Banking Group were 3.7 to 7.8 per cent lower.

A widely predicted decision by the Bank of England to keep rates flat at 0.5 per cent and not to extend the £200bn ($317.5bn) quantitative easing programme did nothing to improve market sentiment.

The European Central Bank also kept rates on hold at a record low of one per cent, as expected, but lingering worries about peripheral eurozone economies also helped depress equities.

An already negative market fell further after new applications for jobless insurance in the US rose unexpectedly, helping the dollar gain as us investors repatriated money which put pressure on commodity prices.

“There is a renewed bout of risk aversion, there were expectations that the number would trend lower,” said Tim Rees, fund manager at Insight Investment referring to the US data.

“Although some company results were pretty good, the market is finding reasons to be bearish,” he said.

Vodafone was the pick of among just five stocks in positive ground, up 3.6 per cent after the mobile phone operator raise its outlook and posted third-quarter revenue ahead of forecasts.

Software company Autonomy was another strong gainer, up 2.7 per cent after it said it was confident about 2010 when posting rises in fourth-quarter earnings that met forecasts.

Drugmaker GlaxoSmithKline turned positive, after posting its fourth-quarter results which topped forecasts. It ended 0.7 per cent higher.

But the overall mood of the market was deeply negative as heavyweight commodity stocks fell sharply as metal and crude prices slid with investors reappraising the demand outlook.

Miners dropped as metal prices were knocked again as the dollar strengthened. Antofagasta, Lonmin, Rio Tinto, Xstrata and BHP Billiton fell 4 to 6 per cent.

Royal Dutch Shell fell 2.1 per cent after it posted a 75 per cent fall in fourth-quarter profit to $1.18bn billion.

BP fell 1.6 per cent and explorer Tullow Oil lost 1.9 per cent.

Consumer goods and food group Unilever fell 3.5 per cent after it warned of increasing competition from its rivals trying to attract cash-strapped shoppers, overshadowing a forecast-beating rise in quarterly underlying sales.