Mining rise offsets RBS slide

Published on Monday 2 November 2009 20:06

LONDON FTSE 100 CLOSE 5,104.5 +59.95

FEARS over Royal Bank of Scotland's plans to sell parts of its business to appease European competition concerns sent its shares tumbling yesterday ahead of today's expected bank restructuring announcement.

RBS shares fell 8 per cent as investors braced themselves for the results of tense negotiations with the European Commission on the price the bank would have to pay for its state aid.

RBS was hit after it said it would have to offload "greater-than-expected" chunks of its business, although the wider market was in positive territory, closing ahead almost 60 points, or 1.2 per cent, at 5,104.5.

A 1 per cent rise in early trading on the Dow Jones Industrial Average on Wall Street helped sentiment on the London market, as it clawed back some of the hefty losses seen last week.

Analysts say the market will focus on the Bank of England's next monetary policy committee meeting on Wednesday and Thursday, with two-thirds of economists in one poll expecting the Bank to extend its 175 billion quantitative easing programme.

Tim Whitehead, head of portfolio strategy at Redmayne-Bentley, said: "The market is waiting for direction at the end of the week when we'll know if quantitative easing is going to be extended … as a consequence I wouldn't expect the market to make a great deal of headway in the short term."

London's rise was also helped by better-than-expected manufacturing data that showed output at its highest level for almost two years last month. The figures were echoed in a similar report for the eurozone, indicating that the sector expanded for the first time in a year and a half.

But RBS was the stock in focus after it said it would have to make sales "not initially contemplated". The bank – 70 per cent owned by the taxpayer – has come up against European competition rules and is expected to have to sell off parts of its investment bank and its Churchill insurance arm, as well as more than 300 branches in England. Shares in RBS dropped 3.27p to 38.65p.

Lloyds Banking Group – thought to be on the verge of a deal over fundraising plans to evade a taxpayer-backed insurance scheme for toxic assets – also took a tumble. Shares in the UK government-supported bank lost 2.03p to 85p.

Market speculation of revived bid interest in Rio Tinto from BHP Billiton helped give the mining sector a boost. Rio added 119.5p to 2,812.5p, although the Footsie's top riser was Randgold Resources, up 236p at 4,196p.

In the FTSE 250, directories group Yell said enough lenders had approved its plans to restructure its 3.8 billion of debts. Shares in the owner of Yellow Pages rose 3 per cent, or 1.52p, to close at 49.73p – after rising 13 per cent earlier in the day – as it said it would press on with plans to raise at least 500 million.

Budget airline EasyJet was down 3.6p at 363.7p after rival Ryanair – listed in Dublin – announced a big jump in profits due to lower fuel prices, but said it would be loss-making in the second half of its financial year.

Back in the top flight, British Airways was 1.9p lower at 179.9p ahead of heavy first-half losses expected on Friday and amid a continuing disagreement with unions over its staffing plans.

On Aim, Edinburgh-based oil and gas explorer Bowleven slipped 0.5p to 86.75p despite narrowing its full-year losses from $10.9 million (6.6m) to $10.2m in the year to 30 June. The firm also unveiled plans to drill four appraisal wells off Cameroon during 2010.

Shares in Dundee-based Alliance Trust rose by 5p to 307p after the company released its latest data, placing its net asset value at 365.2p.