FTSE inches higher but RBS leads the spiral of banks

Published on Tuesday 7 October 2008 21:10

LONDON FTSE 100 CLOSE 4,605.2 +16.0

TRADING in Royal Bank of Scotland shares dominated yesterday's session, with the stock touching a 15-year low despite the wider market closing 0.4 per cent higher.

RBS plunged nearly 40 per cent as speculation mounted over an imminent taxpayer-funded rescue of Britain's embattled banking sector.

Shares in Scotland's biggest company hit their lowest level since 1993, closing 39.2 per cent weaker at 90p, and wiping some 10 billion off the value of the business.

HBOS – which looks like being bought by Lloyds TSB in a rescue takeover – tumbled 41.5 per cent to 94p while Barclays slid 9.2 per cent to 285p as investors bailed out in the uncertainty.

The banks' woes hampered a fightback by the benchmark FTSE 100 Index after Monday's 7.8 per cent slump – the biggest since Black Monday in October 1987.

The Footsie last night closed 16 points higher at 4,605.2 in another nail-biting session, after swinging from a low of 4,517.5 to a high of 4,745.

CMC Markets dealer Jimmy Yates said: "There's still a massive amount of caution in the market and with some of the banks clearly struggling in light of rumours of government intervention perhaps the overall progress is unsurprisingly limited.

"The miners are enjoying some support, however, as metals prices are bolstered by investors' desire to find safe havens for their cash but the outlook remains rather uncertain whilst further news from the government is awaited."

IG Index's head of sales trading, Tim Hughes, said: "At the moment it is difficult to see what can be done for confidence in the banks.

"With financial dramas cropping up on almost a daily basis, it is not hard to understand why any rallies in the broader market are proving to be unsustainable."

During the London session, the US Federal Reserve announced the creation of a special-purpose facility with the US Treasury department's blessing to begin buying commercial paper, which is widely issued to fund day-to-day business operations, as other investors have become increasingly reluctant to buy them.

Heavyweight energy stocks gained along with higher crude prices. BP, Royal Dutch Shell and BG Group soared between 2.9 and 4.6 per cent.

Strong metal prices also lifted mining shares, with BHP Billiton, Rio Tinto, Anglo American, Eurasian Natural Resources, Vedanta Resources and Antofagasta gaining between 1 and 11 per cent.

Pharmaceuticals, which investors deem as defensive stocks, were in demand, with GlaxoSmithKline gaining 1.9 per cent and Shire up 3.4 per cent.

Drinks groups Diageo and SABMiller were also among the top gainers, benefiting from investors' move to more defensive areas. SABMiller surged 10.6 per cent and Guinness-owner Diageo gained 5.4 per cent.