Corporate gloom sends shares sliding

THE London market fell 1.1 per cent yesterday as British companies said they were feeling the effects of government austerity measures.

Capita was the biggest faller in the benchmark FTSE 100, down 4.1 per cent after the outsourcing company said it was feeling the pinch as clients curbed spending. It cautioned that it would only deliver “reasonable” 2011 revenue growth.

Shares slid 27.5p to 640p as Oriel Securities repeated its “reduce” rating for the firm, saying: “Capita offers no surprise by confirming our view that downward pressure on revenue is more severe than they guided at the interims.”

Defence products firm Chemring was the biggest faller in the FTSE 250 index, dropping 13 per cent or 62.4p to 421.6p after it said orders being delayed to the current financial year would hit full-year profits.

The FTSE 100 index lost 176 points during the week, knocking 3.3 per cent or £45 billion off the value of Britain’s top firms.

Commodity-focused stocks bore the brunt of the sell-off yesterday, with silver miner Fresnillo off 48p at 1,711p and Glencore 14.2p lower at 398.7p.

Chris Beauchamp, market analyst at IG Index, said: “London’s decline has been broad based, with gainers being few and far between. Miners and banks have led the decline as investors take the view that there is still no cause for optimism on the eurozone crisis front.”

Lloyds Banking Group fell to a fresh 32-month low on fears that Northern Rock’s £747 million sale price indicated a poor return for the 632 branches it must sell in order to meet EU competition rules. Lloyds shares were down 0.5p to 25.2p. Elsewhere in the sector, Barclays was down 1.7p at 166.4p and HSBC slipped 3.6p to 480.9p.

The pound was lower against the euro at €1.17 after the single currency was boosted by the slight easing in Spain’s and Italy’s borrowing costs. Sterling was up against the dollar at $1.58.

Spain’s borrowing costs had escalated ahead of a general election this weekend, while Italy’s new head Mario Monti faces a tough job beating the country’s finances back into shape. Both countries’ bonds are dangerously close to the 7 per cent level that forced Ireland and Portugal to ask for a bail-out, but are seen as being too big to rescue and could sink the eurozone if they default.

Meanwhile, two stocks on the receiving end of sharp sell-offs in recent sessions made much-needed progress in the FTSE 250.

Debt-laden Premier Foods, which makes Hovis and Mr Kipling products, rose 0.7p to 5.2p, while Mothercare pulled back from Thursday’s heavy post-results losses to stand 5.7p higher at 133p.

In a quiet session for corporate news, shares in pawnbroker Albemarle & Bond were flat at 318p despite another strong trading update. The group, which recently posted higher profits for the 20th year in a row, told shareholders at its AGM that it traded well in the four months to the end of October.

The negative sentiment meant Edinburgh-based oil and gas firm Melrose Resources saw shares slip 1p to 115p despite announcing that it would start its first exploration wells in Romania in the new year.