BRITAIN’s benchmark FTSE 100 index fell to its lowest closing level in more than four months yesterday, as new fears about the Greek banking system killed off a brief afternoon rally on the market.
The FTSE 100 fell by 32.37 points, or 0.6 per cent, to 5,405.25 points – above a 5,400 point resistance level but still ending at its lowest close since 21 December, when the market finished at 5,389.74 points.
“The bias is still to sell on rallies,” said Hartmann Capital equities and derivatives sales trader Basil Petrides.
The FTSE 100 had fallen as much as 1.5 per cent to an intraday low of 5,354.00 points, before recovering during the afternoon session to trade up 0.2 per cent to an intraday high of 5,448.38 points.
However, it failed to breach the 5,500 level and then fell back after Eurozone central bank sources told Reuters that the European Central Bank had stopped monetary policy operations with some Greek banks.
Greece also put a senior judge in charge of an emergency government yesterday to lead it to new elections on 17 June, while bankers sought to calm public fears after the president said political chaos risked causing panic and a run on deposits.
PrimeMarkets head of dealing Richard Curr said the FTSE 100 was set to trade within a range of 5,200-5,500 points, but added there was a danger of it falling to below the 5,000 points given the danger that Greece may have to quit the Eurozone.
Curr said the VIX volatility index had risen above the 20 point level, indicating investors’ fears over the economic outlook and sending out signals to sell off equities in favour of less risky assets such as cash or bonds.
“The VIX looks set to break out, which could signal bad news,” he said.
Heavyweight mining stocks led the FTSE’s fall, as global mining leader BHP Billiton said that commodity markets could cool further. Fresnillo was the worst-performing stock, falling 4.1 per cent, while Glencore dropped by 1.9 per cent and Polymetal International closed down 1.4 per cent.
Mid-cap stock Lamprell slumped 57 per cent after the oil rig maker warned it would make a first-half loss.
Aberdeen Asset Management and chemicals group Croda rose by between 3-3.5 per cent to top the FTSE’s leaderboard, after winning entry into a key MSCI index, meaning that more index tracker funds would buy up their shares.
However, the worries over Greece have meant that many fund managers have continued to steer clear of European stocks, preferring the US stock market or fast-growing Asian equities due to the better economic prospects in those regions.
Thurleigh Investment Managers partner Edward Allen, whose firm manages around £300m in assets, said Thurleigh had shifted one per cent of its assets out of cash and into an iShares emerging market fund, but not into European shares.
“Greece has bought itself a bit more time – but not much,” he said.
Across Europe as a whole shares also sank to new 2012 lows yesterday in a broad-based sell-off as concern over contagion from Greece gripped investors.
The FTSEurofirst 300 index fell 0.7 per cent to 991.03, having dropped 0.7 percent on Tuesday.