Jobs data boosts FTSE but US markets falter

London stocks have closed slightly higher after better-than-expected US jobs figures prompted an afternoon rally, but US markets remain down after fresh downgrades of Spain and Italy.

The FTSE 100 index spiked sharply when US figures showed 103,000 new jobs created, and while it gave up most of the gains it still closed up 0.2 per cent at 5,303.

But US markets have spend session, weighed down by more negative credit rating news after Fitch downgraded the ratings of both Italy and Spain.

Fitch cut Spain's credit ratings by two notches, just a few minutes after downgrading Italy, saying the intensification of the Eurozone debt crisis has had a negative impact in the entire region.

The ratings agency cut Spain's credit ratings to AA-minus from AA-plus. It kept a negative outlook on the new rating, in a sign more downgrades are possible in the next couple of years.

Risks to the fiscal consolidation of Spain have risen as prospects for the country's economic growth declined, Fitch said in a statement.

The Standard & Poor’s 500 index is now off by 0.8 per cent and the Dow Jones industrial average down 0.2 per cent. The Nasdaq composite index has lost 0.9 per cent.

The UK’s stocks spent the morning weighed down by a grim reading of the UK banking sector by rating agency Moody’s, which downgraded 13 banks by up to three notches in light of the government’s decision not to bail them out in another crisis.

Chancellor George Osborne defended the government’s stance and said the banks were well capitalised.

But banking stocks ended the day among the biggest FTSE 100 fallers, led by Lloyds which gave up 3.3 per cent at the close.

RBS was off by three per cent while Barclays fell 1.9 per cent.

Insurance groups also suffered, with car insurer Admiral down 1.7 per cent and RSA off by 1.6 per cent. Asset management group Legal & General closed down 1.7 per cent.

But the US jobs data reassured investors in other sectors, causing a bounce as miners and even some retailers gained ground.

Vedanta Resources closed 4.2 per cent higher while peers ENRC and Xstrata rose about 2.8 per cent apiece.

Builders merchant Wolseley gained 4.1 per cent while home improvement group Kingfisher added three per cent.