FTSE weighed down by talk of more banking rights issues

BRITAIN’S top share index closed lower yesterday, dragged down by banks on worries about rights issues in the sector, while mobile phone heavyweight Vodafone rose following an upgrade from Nomura.

The FTSE 100 ended down 20.14 points, or 0.4 per cent, at 5,727.21, after gaining 1.5 per cent on Wednesday to its highest closing level since late April.

Banks took the most points off the index, after Standard Chartered’s announcement of a rights issue on Wednesday sparked worries that sector peers would follow suit.

“There’s a lot of concern amongst investors that a lot of the banks will have to raise additional capital to comply with Basel III [regulations],” Michael Hewson, markets analyst at CMC Markets, said.

StanChart outperformed its peers, up 0.6 per cent and recovering after falls in the previous session, as Seymour Pierce lifted its rating on the stock to “outperform” from “hold”.

Royal Bank of Scotland dipped 4.7 per cent, Barclays shed 4.1 per cent and Lloyds fell 2.9 per cent on heavy trading, as investors fretted over similar massive cash calls ahead of the introduction of Basel III.

Elsewhere, African Barrick Gold led the blue-chip fallers, sliding 9.5 per cent after the miner cut its 2010 production target for the second time in three months after uncovering fuel theft at its Buzwagi mine.

Sector peers were in demand as dollar weakness supported metals prices. Xstrata gained 3.32 per cent to £13.42, Rio Tinto added 2.39 per cent to £41.34, while Fresnillo put on 2.26 per cent to close at £13.11.
Johnson Matthey was among the top blue-chip gainers, up 2.7 per cent, after RBS lifted its target price for the UK specialist chemicals firm to £20 from £18 while repeating its “buy” rating on the stock.

Vodafone helped limit the FTSE 100’s losses, up 1.6 per cent after Nomura upgraded its rating to “buy” from “neutral”, citing positive earnings momentum.

Other stocks perceived as being resilient in the face of economic hard times were weaker, however, as investors switched to more cyclical stocks. Imperial Tobacco was down two per cent and drugmaker GlaxoSmithKline eased 1.2 per cent.

Chip designer ARM Holdings was up 1.5 per cent, lifted by strong results from Intel in the United States.

Software company Autonomy was one of the biggest fallers however, down 2.5 per cent, following a series of downbeat analyst notes.

Technical levels were also being closely watched, with the FTSE 100’s next significant resistance at 5,795, a peak hit three times in April just after the previous peak at 5,835, CMC Markets’s Hewson said.
Meanwhile, the FTSE 250 closed down 19.34 points, or 0.18 per cent, at 10,882.66. The FTSE 350 finished down 9.95 points, or 0.33 per cent, at 3,025.34.