Fears of financial sector meltdown hits UK markets

Published on Tuesday 19 August 2008 21:09

FEARS that the global financial crisis could get worse in the coming months led to widespread losses in London last night as the FTSE 100 index tumbled 2.4 per cent.

Banks and retailers were worst hit as reports of a US government bail-out for mortgage firms Fannie Mae and Freddie Mac and speculation about weaker than expected third-quarter results from Lehman Brothers rocked the market.

The Footsie ended the day down 129.8 points at 5,320.4, with former IMF chief economist, Kenneth Rogoff, adding to the worries by warning that a large US bank could collapse in the next few months.

UK banks had been showing tentative signs of improvement in recent days, but the blow to confidence meant the sector accounted for a large slice of yesterday's losses.

CMC Markets dealer Jimmy Yates said: "Credit crunch issues are continuing to linger and as a result the banking sector has taken the brunt of the downside, accounting for around 50 points although there has been little cheer to be found elsewhere either.

"The scope for a rebound as traders look to pick up some keenly priced stock shouldn't be ignored now but ex-divs are forecast to take another 16 points off the FTSE in the morning suggesting that a return to the sub-5,300 level that dominated for much of July could be seen once again."

HBOS was worst hit, losing more than 7 per cent or 22p to 277.5p. Barclays slipped 18.5p to 324.25p, Royal Bank of Scotland fell 13.5p to 215p and Lloyds TSB eased 17.75p to 288.25p.

Insurers did not escape, with Legal & General falling 7.2p to 95.9p.

Among the consumer-facing stocks, worst off were Marks & Spencer, down 16.5p to 255.75p, and Wolseley, which dived nearly 9 per cent, or 36.75p to 389.5p – making it the top flight's biggest casualty. B&Q owner Kingfisher joined the slide, falling 8.1p to 120.1p.

Property stocks were also lower after warehouse specialist Brixton reported half-year losses and gave an insight into the turmoil facing the market, particularly the current confusion over valuations. Brixton – a FTSE 250 index stock – fell 9 per cent, or 23p, to 224.75p, while in the top flight Hammerson slipped 61p to 862p and British Land eased 45p to 704p.

The weaker sentiment caused by Brixton's results also impacted housebuilders in the FTSE 250, with Persimmon down 21p to 311p ahead of half-year results later in the week. Barratt Developments was off 7.75p at 121.5p and Taylor Wimpey fell 3.5p to 43.25p.

Defensive-looking stocks attracted buying interest in the FTSE 100, with medical devices firm Smith & Nephew ahead 13.5p at 632p.

In the FTSE 250, satellite communications services firm Inmarsat surged 10.25p to 498.25p on the successful launch of its third Inmarsat-4 satellite.