FTSE close: Footsie on edge over Dubai debt plan
The unfolding Dubai debt crisis caused jitters on the London Stock Exchange today.
Sharp falls on the Dubai stock market and a statement from the Dubai government that it will not underwrite Dubai World's debts saw an intially robust London market reverse into the red.
The FTSE 100 struggled for direction throughout the day, as investors digested the implications of Dubai's strained finances for the global economy.
The blue-chip index suffered a 3.2% drop on Thursday, its biggest one-day percentage fall in eight months, after the state-owned Dubai World requested a debt-repayment holiday, but nerves were soothed by gains on Asian markets last night. However the Footsie today closed 55.1 points down at 5,190.7.
Japan's Nikkei 225 stock average climbed 224 points, or 2.5%, to 9,306, and Hong Kong's Hang Seng added 703 points, or 3.3%, to 21,837. But a 7.2% drop on the Dubai domestic exchange this morning and an admission from the Dubai finance chief that the state will not bail out Dubai World upset the London market.
'Markets hate uncertainty and this has been heightened. Investors were looking for an excuse to sell, which (the Dubai debt problems) have given them an excuse to do,' said David Buik, senior partner at BGC Partners.
The blow to confidence caused by the situation in Dubai was seen in the banking sector after heavy falls for Royal Bank of Scotland and Lloyds Banking Group.
The latter, which is currently attempting to raise £13.5bn from shareholders, also suffered after Deutsche Bank cut its price target to 70p from 115p and said fears remained over a double dip in the economy.
Barclays was 5.5p down at 292.35p, Standard Chartered was 36p down at 1,4484p, Royal Bank of Scotland was 1.55p down at 33.18p and Lloyds Banking Group fell 3.45p to 55.15p.
But HSBC gained 0.7p to 707p, after BofA Merrill Lynch upgraded the stock to 'buy' from 'neutral'.
London Stock Exchange fell 23.5p to 752.5p, hurt by the fact that Borse Dubai holds a sizeable stake in the company.
Heavyweight stocks dragging the Footsie lower included pharmaceuticals firm GlaxoSmithKline, which dropped 22p to 1257p. Royal Dutch Shell eased 32p to 1737p after oil prices remained near US$76 a barrel.
Travel companies were in favour after Thomas Cook said it was confident it would meet its expectations for 2010 as summer bookings remained in line with forecasts and it reported 2009 pretax profits ahead of market expectations.
Thomas Cook fell 4.2p to 212p, while peer Tui Travel gained 2.2p to 245.9p, with investors confident that its fourth-quarter results due on Tuesday would also be strong.
Pub firms Enterprise Inns and Punch Taverns wavered in the FTSE 250 Index, falling 5.4p to 98.7p and rising just 0.05p to 78.95p respectively.
Reminding investors of the difficult domestic environment, British consumer confidence unexpectedly fell this month for the first time since January, slipping back to its lowest level since August, a monthly survey by GfK NOP for the European Commission showed.
But the housing market in England and Wales strengthened modestly in November, with the smallest year-on-year drop in house prices since May 2008, a survey by property data company Hometrack showed.
Finally, the service sector turned in a weaker-than-expected performance in the third quarter but is more optimistic about the future, a survey by the Confederation of British Industry showed.
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