Euro-crisis continues to weigh on City

FEARS over Germany’s credit rating dragged down shares across Europe yesterday, wiping out early rises in London as worries over the European debt crisis began to re-emerge.

All three of the major credit ratings agencies denied rumours of a possible downgrade of Europe’s powerhouse economy but that didn’t stop Germany’s Dax index losing 4 per cent in just 15 minutes.

The FTSE 100 index fell 74.75 points or 1.4 per cent to end the day at 5,131.1, having hit 5,254.17 earlier in the session.

The Dax closed down 1.7 per cent while France’s Cac was 0.7 per cent lower.

David Jones, chief market strategist at IG Index, said: “Despite the afternoon’s gyrations, the FTSE 100 is still about 1.5 per cent higher for the week. That in itself could be considered to be impressive given many are waiting for today’s UK and US gross domestic product figures and any updates from US Federal Reserve chairman Ben Bernanke.

“We have seen some confidence come back into shares over recent days – the real test will be whether these gains can be held onto through what should prove an interesting end to the week.”

Hopes faded that the US would announce more quantitative easing to inject fresh life into its economy.

A rise in weekly US jobless claimants added to the downbeat mood. Even a move by legendary investor Warren Buffet to snap up $5 billion (£3bn) worth of shares in struggling Bank of America failed to spark any buying enthusiasm.

The pound was down against the dollar and the euro at $1.63 and €1.13 respectively. Gold, which is seen as a safe haven amid the economic turmoil, crept back up to $1,737 an ounce, although it is still a long way off the $1,912 peak earlier this week.

London’s banks made gains after being spurred on by better-than-expected results from French bank Credit Agricole.

Barclays topped the risers board, lifting nearly 6 per cent, or 8.3p at 157.9p, while Royal Bank of Scotland was 1.2p higher at 23.1p, and Lloyds Banking Group improved 0.9p to 31p.

They were joined on the risers’ board by drinks giant Diageo after strong demand in emerging markets helped Scotland’s largest whisky distiller to lift full-year profits by 5 per cent to £2.4bn. The dividend for the year went up by 6 per cent to 40.4p and chief executive Paul Walsh indicated that the company’s medium-term targets could lead to “even stronger dividend growth.” Shares were ahead 5 per cent or 52p at 1,170p.

A further gloomy UK retail survey, this time from the CBI, showed sales falling in August at the fastest pace in more than a year. High street bellwether Marks & Spencer fell 4 per cent, or 14.7p, to 316.1p, clothing rival Next dropped 37p at 2,243p and B&Q parent Kingfisher lost 7.9p at 223.3p.

Insurer Admiral was a heavy faller for the second day running, losing more than 5 per cent over worries over referral fees and rising personal injury claims. Admiral fell 74p at 1,279p.

Among the Scottish stocks, chemicals transporter Interbulk jumped 11 per cent in early trading after signing a contract in China with drug maker Bayer. Shares later closed up 3.6 per cent or 0.25p at 7.25p.