Italy had to pay 6.47 per cent on five-year bonds in an auction yesterday, up from a previous euro era record high of 6.29 per cent in mid November, as neither last week’s EU summit nor tough new austerity measures by the government of Mario Monti succeeded in restoring market confidence.
The FTSE 100 index closed down 123.35 points, or 2.3 per cent, at 5,366.80, having rallied 1.2 per cent on Tuesday.
“The FTSE 100 is in the process of recording its fifth ever loss for the month of December since being established as all the festive cheer is being sapped by the continued lack of a lasting resolution to the European debt crisis,” said Angus Campbell, head of sales at Capital Spreads.
Mexican silver miner Fresnillo was the top FTSE 100 faller, down 11.1 per cent, with the stock trading ex-dividend, and with its falls exacerbated by news that FTSE Group plans to increase the minimum free float requirement to be included in its indexes to 25 per cent, up from 15 per cent.
Fresnillo and fellow commodity blue chips Essar Energy and ENRC will all be affected by the FTSE rule change, together with soon to be blue chip Russian miners Evraz and Polymetal, and FTSE 250 firm Ferrexpo, all of which were lower.
The affected firms will have a 24-month window to increase their shares that are freely tradeable to the new level.
Overall miners and integrated oils were the two worst performing sectors yesterday, having been Tuesday’s top gainers, with copper miner Antofagasta five per cent lower, and oil major BP down 2.5 per cent.
British banks were also under pressure reflecting concerns over their debt exposure to Europe.
Goldman Sachs said while the ECB’s latest liquidity measures – reserve ratio cut, three-year refinancing and expansion of collateral – substantially enhanced the sector's resilience and guarantee bank funding stability in 2012/13, it keeps a “neutral” sector view, given Eurozone developments.
Lloyds shed 2.6 per cent. The bank named the Co-Operative Group as the preferred bidder for its European Commission-mandated branch divestment, and also said Antonio Horta-Osorio will return to the position of chief executive on 9 January after independent medical advice said he had made a full recovery after being on sick leave from stress.
Retailers were under pressure as leading investment banks forecast more gloom for the sector in the face of Europe’s debt crisis, austerity measures and flagging consumer sentiment.
Tesco fell 0.8 per cent as ING cut its rating to “sell” from “buy”, while Marks & Spencer fell 2.3 per cent as the broker downgraded it to “sell” from “hold”.
But Wm Morrison Supermarkets bucked the trend, up 0.3 per cent, the sole FTSE 100 gainer, as ING upped its rating to “buy”.
Among the mid caps, fashion retailer SuperGroup was the top performer, ahead seven per cent after first-half results that prompted Seymour Pierce to repeat its “buy” rating.