Doubts over strength of FTSE bounce

FINANCIAL stocks finished at the top of the Footsie risers’ board yesterday, with Royal Bank of Scotland and Lloyds Banking Group leading the way.

The pair rebounded from losses earlier in the week to climb 4.3 per cent and 3.5 per cent respectively.

Banking and mining stocks had born the brunt of the sell-off during the previous nine sessions, the Footsie’s worst losing streak since January 2003.

The FTSE 100 index had shed more than 7 per cent of its value over the past two weeks amid fears surrounding the eurozone debt crisis, but closed up 37.08 points or 0.7 per cent last night at 5,164.65.

Yet Angus Campbell, head of sales at Capital Spreads, warned: “Today’s rally comes with a note of caution as volumes were particularly low.

“An Italian bond auction was also poorly subscribed, reminding us that investors still remain sceptical when it comes to a lasting resolution to the crisis.”

RBS edged 0.77p higher to 18.74p, while Lloyds was up 0.78p at 23.19p and Barclays climbed 2.1 per cent or 3.15p to 155.65p.

The gains for financial stocks came despite Italy being forced to pay a euro-era high of 6.5 per cent to borrow for six months on bond markets, while two year borrowing costs were above 7 per cent, amid fears of a default.

On currency markets, the pound was up at €1.17 against the euro after the single currency was knocked by the worrying Italian bond auction. But sterling was down against the traditional safe haven of the dollar at $1.55.

Fears over the eurozone have been building all week and worsened yesterday as debt-laden Italy, which has given the task of sorting out its finances to a government of economists, faced unsustainable borrowing costs. It is too big to bail-out and has could sink the eurozone.

To add to the gloom, Hungary’s debt was downgraded to junk status after a similar move for Portugal on Thursday.

The stock market rally was partly caused by reports that private companies will not be required to contribute to the eurozone bail-out fund.

Comments from European Commission president Jose Manuel Barroso that Germany would agree to creating eurobonds once the currency bloc was more closely integrated also helped sentiment.

Troubled retailer Blacks Leisure plunged 11 per cent after issuing another profits warning following a further deterioration in sales. The group, which owns the Blacks and Millets chains, fell 0.5p to 3.9p after it said plummeting consumer confidence had hit trade and it was seeking additional cash to fund its turnaround plans.

Thomas Cook was the biggest riser in the FTSE 250 index as it continued its rebound following a major slide earlier in the week after admitting it had returned to its banks to ask for more funding. Its shares were up 10 per cent or 1.7p to 18p yesterday.

Scotland’s oil firms didn’t share in the wider market rally as oil edged down nearly $2 to $106. Edinburgh-based explorers Cairn Energy and Melrose Resources fell 3.5p to 264.2p and 2p to 114p respectively, while Bowleven dropped a further 1.75p to 65.25p, a day after analysts gave a cool reaction to its latest drilling update.