FTSE tumbles on bank fears

 
Steve Dinneen
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THE FTSE shed £49bn yesterday after slumping to a loss of nearly four per cent, with investors spooked by a barrage of bad news.

RBS dragged the index down, falling 12 per cent on the news it is being sued by the US Federal Finance Housing Agency (FHFA) over allegations it misled buyers of mortgage portfolios worth more than $30bn.

Barclays and HSBC, being sued over a combined $11bn of suspect mortgage packages, lost 6.7 per cent and 3.8 per cent respectively. The banking sector overall hit a two-year low.

The US markets are set to react to the lawsuits today, after remaining closed for Labor Day yesterday.

A sharper than expected fall in service sector growth also hit the FTSE, with the Markit/CIPS services purchasing managers’ index dropping from 55.4 in July to just 51.1.

The bad news was set against the familiar backdrop of Eurozone fears, with German and French indexes also suffering. Angela Merkel’s government faces a court ruling tomorrow over claims Berlin is breaking German law and European treaties by contributing to bailouts.

Brokers gave a bleak assessment of market conditions, with UBS saying equity markets are unlikely to rise above summer lows.