FTSE close: S&P cuts US outlook; stocks tumble

 

17.05 (close)

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The FTSE 100 Index slumped more than 2% today after markets across the globe were shocked by a downgrade of the US government's debt outlook.

Key credit ratings agency Standard & Poor's (S&P) cut the US's outlook to negative from stable following concerns that the Government will not be able to agree a plan to reduce the growing national deficit.

The shock report raised fears the world's biggest economy could lose its AAA credit rating, and helped push London's blue chip index down 125.9 points to 5870.

The pound was up to 1.14 against the euro, which fell following fresh fears of a eurozone debt crisis, but was down to 1.62 against the US dollar.

In America, the Dow Jones Industrial Average also slumped 1.6%. Elsewhere, the Dax in Germany was down 2.1% and France's Cac-40 slipped 2.3%.

In its note, S&P said: 'We believe there is a material risk that US policymakers might not reach an agreement on how to address medium and long-term budgetary challenges by 2013.'

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said the announcement had taken the market by surprise, while Kathleen Brooks, research director at Forex, said the downgrade was a 'shocker'.

The move sparked a rally in gold, seen as a secure investment, which hit a new high at one point in trading as it moved close to 1500 US dollars an ounce.

In a woeful day for the London market just two companies in the top flight made gains.

Heavily weighted banking stocks Barclays and Royal Bank of Scotland were among the biggest losers after Ireland said it will ask to reduce the interest rate on its emergency loan and high level talks began over Portugal's bail-out.

Barclays, which has high exposure to the Iberian peninsula, dropped 11p to 290.7p, and Royal Bank of Scotland which is a major lender in Ireland, fell 0.9p to 41.8p. Lloyds Banking Group was also down 1.3p to 58.8p.

The negative sentiment also helped to weigh down miners and energy companies, with Antofagasta down 68p to 1304p and Anglo American off 155.5p at 2983p.

Medical devices firm Smith & Nephew was one of the biggest top tier fallers, on concerns any takeover interest from US healthcare group Johnson & Johnson may have been scuppered by its talks to buy Synthes. S&N fell 3%, or 21p to 675.5p.

Elsewhere, oil explorer Desire Petroleum plunged 63%, down 25p to 15p, after it failed to find oil at its Ninky well off the Falkland Islands.

And on the Alternative Investment Market, Crosby Asset Management saw its shares soar 44%, or 1.4p to 4.6p, after it emerged that the son of Russian billionaire and Chelsea Football Club owner Roman Abramovich was investing in the company.

Arkadiy Abramovich has taken a 26% stake in the company, which aims to buy up oil and gas assets, through his investment vehicle ARA Capital.

The biggest Footsie risers were WPP up 1p to 722p, and Serco 0.5p 555.5p.

The biggest Footsie fallers were Antofagasta down 68p to 1304p, Anglo American off 155.5p at 2983p, Resolution down 14.7p at 294.7p, and Aviva off 20.2p at 414.7p.

16:00: The FTSE 100 has slumped 123.6 points to 5,872.4 as investors absorb S&P's shock cut to the US's long-term credit outlook.

S&P said: 'Because the U.S. has, relative to its "AAA" peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.'

The White House's economic adviser has reacted by calling S&P's move a political judgement.

The Dow is 228.6 points lower at 12,113.2.

15.05:

Rating agency Standard & Poor's has spooked US investors by cutting its credit outlook on the country from stable to negative.

The US, which has a huge budget deficit, is still rated AAA.

The Dow Jones is trading 214.9 points lower at 12,127. The FTSE 100 is down 114.2 points at 5,881.8.

14.45:

The Dow Jones has opened 161 points lower at 12,180.9.

China's latest move to increase banks' reserve requirements and a mixed first quarter report from CitiGroup are preoccupying US investors.

The banking giant's earnings were ahead of expectations but its revenues missed forecasts. However, there was better news from oil services firm Halliburton which beat analysts' hopes.

The FTSE 100 has seen losses deepen. It's shed 111.7 points to trade at 5,884.3.

13.10:

London stocks remain in the red - the Footsie is down 61.5 points at 5,934.5.

Banking stocks are being pushed downwards as fears remain over the ability of Greece and Ireland to service their debts while there are also doubts as to whether Portugal's bail-out will be approved.

Barclays, which has high exposure to the Iberian peninsula, dropped 7.2p to 294.5p, and Royal Bank of Scotland, a major lender in Ireland, fell 0.7p to 42p. Lloyds Banking Group was also down 1p to 59.1p.

The negative sentiment also helped to weigh down miners and energy companies, with Essar Energy off 9.8p at 438.8p and Fresnillo down 32p at 1543p.

ITV topped the risers board after it received an upgrade from Jeffries, helping it rise 1.4p to 75.1p.

There was also some positive news for retailers as they recouped some of their recent losses after B&Q owner Kingfisher received an upgrade from Bank of America Merrill Lynch. Kingfisher rose 2.7p to 268.1p, while Next was up 5p to 2210p.

We have more on Desire Petroleum, which has seen its shares slump after hopes of it finding oil off the Falklands Islands were dashed once again

Desire saw its stock tank nearly 70% at one stage after it said its Ninky Well in the North Falkland Basin would be shut down and abandoned, but it was later trading down 23.75p at 16.25p.

Meanwhile, Crosby Asset Management saw its shares soar 56%, or 1.8p to 5.07p, after it emerged that the son of Russian billionaire and Chelsea Football Club owner Roman Abramovich was investing in the company.

Arkadiy Abramovich has taken a 26% stake in the firm, which aims to buy up oil and gas assets, through his investment vehicle ARA Capital.

Futures trading indicates a lower open on the Dow Jones. First quarter results from drug firm Eli Lilly beat forecasts. US investors are waiting to see CitiGroup's figures later.

11.50:

Shares in European online betting firms have soared after the US closed several providers across the Atlantic amid an FBI probe.

Bwin.party Digital Entertainment is up 32% or 42p to 173p, while 888 Holdings is 22% or 7.75p higher at 42.5p.

'Investors see the move as giving some of Europe's major players an opportunity for growth,' said Joshua Raymond, market strategist at City Index. We have more on the US investigation here.

Brent Crude is trading at just above $121 a barrel today. Gold was fixed this morning at $1484.50 an ounce compared with $1476.75 at the previous close.

The FTSE 100 is down 56.1 points at 5,939.9.

11.05:

The Footsie has extended losses and is trading 44.6 points lower at 5,951.4.

'Markets have made an uninspiring start to the week, with the FTSE drifting further away from the 6000 mark,' commented Anthony Grech, head of research at spreadbetter IG Index.

'It is the start of what could be a low-volume period for shares in London with investors' attention likely to be distracted by the combination of Easter holidays and the royal nuptials – it could make for some choppy days ahead but with little overall progress.'

And having edged up earlier by 0.8p to 456.55p, BP is now down 2.3p (0.5%) to 453.4p.

9.55:

The FTSE 100 got off to a faltering start this week as the news from Japan remained grim and the eurozone debt crisis continued to pressure banks.

The blue chip index fell 16.9 points to 5,979.1 in early trading.

Tokyo's Nikkei slid overnight amid caution ahead of the corporate reporting season and following news the Japanese nuclear crisis could last for up to nine months.

But there were gains elsewhere in Asian markets as they took China's hike in banks' required reserves on Sunday in their stride. The development was not a surprise as more tightening was forecast following the rise in China's inflation rate last week.

Meanwhile, the economic troubles in Ireland and Portugal continued to weigh on investors.

UK banks were under pressure for a second session after Ireland's rating blow last week and as high level talks were due to begin in Europe over Portugal's proposed bailout.

Barclays dropped 5p to 296.7p and Royal Bank of Scotland fell 0.5p to 42.

BP edged up by 0.8p to 456.55p as it emerged that one of its top investors had advised the oil giant to double its £19bn asset sale programme, with the aim of creating a sleeker operation with greater growth potential.

Chairman Carl-Henric Svanberg is currently under fire from disgruntled investors, with one shareholder at BP's annual meeting last week dubbing the Swede a 'shrinking violet'.

Medical devices firm Smith & Nephew was the biggest top tier faller on concerns any takeover interest from rival Johnson & Johnson may have been scuppered by news its suitor is in talks to buy Synthes. S&N fell 4% or 28.3p to 668.3p.

Elsewhere, oil explorer Desire Petroleum plunged nearly 60%, down 23.6p to 16.4p, after it failed to find oil at its Ninky well off the Falkland Islands.

In currency, the pound is at $1. 6269 compared to $1.6322 at the previous close. Against the euro, the pound is €1.1342 compared to €1.1299 at the previous close.