FTSE 100 close: Banks hit by rally fears

 

London's blue-chip share index managed to hold ground today, as doubts over the sustainability of the summer rally mounted.

The sign and logo of the London Stock Exchange

The FTSE 100 closed just 2.15 points down at 4,817.55, after losing almost 2% yesterday.

Trading on Wall Street stuttered in its morning trade, down 6.8 at 9,303.8.

The blue-chip FTSE 100 has rebounded 38% since the trough in March, and is up 13% so far this quarter, but analysts warn that September could see a period of consolidation on the index after low trading volumes during the summer holidays.

'The whole rally was effectively a banking recovery and as soon as you start to see the banks wobbling it is very, very hard for the market to actually remain well supported,' said Geoff Wilkinson, Head of Investment Research at Mint.

'(On the Footsie) 4,750 is the next support level we are seeing. That's where we stalled in mid-May and we took a long time to get through that.

'It's a good short-term support level. If we get below that we may get a proper sell-off,' Wilkinson added.

Investors today showed little appetite for risky assets due to the uncertainty about whether the powerful six-month rally can be sustained.

Financial shares were among those to feel the heat, with Royal Bank of Scotland down 2.2p at 53.3p, a drop of 4%, and Aviva off 15p at 390.3p.

Lloyds Banking Group fell 6.6p to 99.41 as the Guardian newspaper reported the bank had won backing from its investors to raise £10bn as it looks to reduce its dependence on the taxpayer.

Further losses for insurance firms on speculation that the sector may have to raise £50bn to meet capital requirements under new solvency rules saw Legal & General lose 6.45p to 68p - almost 9% - with declines compounded as it turned ex-dividend, meaning new investors will not be able to participate in the next dividend payout. Old Mutual lost 2.75p to 88.6p.

BP shares jumped 22.15p to 541.65p after it revealed it has made a 'giant' oil discovery in the Gulf of Mexico. BP said that the find was made at its Tiber Prospect well, which was drilled in Keathley Canyon block 102, in which BP has a 62% working interest.

Retailers saw good demand as Bank of America-Merrill Lynch reinstated coverage on 10 general retail stocks as it launched combined coverage of the food and general retail sector.

Supermarket Morrisons was also a strong performer, up 9.8p to 285.8p after Deutsche Bank lifted its target price. Rivals Tesco and Sainsbury's both gained ground, rising 3.6p to 371p and 1p to 325.6p respectively.

Mining firms were dragged down as metal prices dipped on a slightly firmer dollar. Kazakhmys fell 33.5p to 920p and Antofagasta slid 24.5p lower to 711p, with the sector littering the fallers' board.

The broker said its top UK sector picks were Marks & Spencer (1.6p up at 339.4p), Kingfisher (1.7p up at 207.8p) and Wm Morrison.

The biggest corporate announcement of the session came from Currys owner DSG International, which reported another sharp fall in UK sales but said stronger a international performance helped limit the overall decline to 6%.

With chief executive John Browett talking of an 'encouraging' start to the financial year, shares rallied 0.74p to 27.73p.

 

Tomorrow's agenda

More evidence of the UK's employment picture will be revealed when Hays posts its final results. Panmure reckons the country's leading specialist recruitment consultancy will post a pre-tax profit of £155m.

Panmure explained: 'Hays appears to have acted more quickly on reducing costs than some of its peers, although headcount did continue to fall in the fourth quarter as demand patterns continue to shrink.'

HMV said business was booming because of the demise of Zavvi at its last results, so investors will be keen to discover what the latest holds in store for the business when the music retailer issues an interim update.

Citi expects a 1% fall in first-quarter like-for-like sales, which it works out as a 2% boost to sales in the UK and Ireland business, a 9% drop in the international division and a 3% decline at bookseller Waterstone's.

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