Euro fear rears its ugly head again

Uncertainty over the eurozone debt crisis triggered a flight from risk yesterday as London’s top shares index closed nearly 1.5 per cent lower.

The FTSE 100 Index finished 76.42 points down at 5,217.63 amid increasing speculation that European leaders want to force private holders of Greek bonds to take bigger losses.

German chancellor Angela Merkel fuelled uncertainty as she failed to rule out the possibility that Greece’s bail-out package could change after reports suggested as many as seven of the eurozone’s 17 members want banks to take a bigger hit on their Greek holdings.

Elsewhere, orders for manufactured goods in the US fell in August after a sharp jump in the previous month, America’s commerce department said, adding to gloom surrounding the country’s economic recovery.

The pound was up against the dollar at $1.56, after the greenback was weakened by the soft durable goods data. However, sterling was down against the euro at €1.14 after the single currency was boosted when Finland voted in favour of increasing the EU bail-out fund.

Michael Hewson, market analyst at CMC Markets, said: “European markets initially traded between positive and negative territory, before sliding back in the afternoon as investors awaited the next developments in the on-going saga that is Europe’s sovereign debt crisis.

“Uncertainty remains the primary sentiment as mixed messages continue to come out of Europe with respect to the next steps in the crisis..”

The banking sector dragged on the market in London amid the increased uncertainty and mixed signals, with the weak sentiment compounded after Jose Manuel Barroso, the head of the European Commission, backed a proposal for an EU-wide financial transactions tax.

Lloyds Banking Group fell more than 2 per cent or 0.9p to 36.1p, Royal Bank of Scotland dropped nearly 4 per cent or 0.9p to 24.1p and Barclays lost 2.1p to 166.4p.

Miners were up by as much as 12 per cent on Tuesday but featured on London’s fallers’ board yesterday as Vedanta Resources slipped 45p to 1,151p and Xstrata eased 23.1p to 879p.

Hedge fund manager Man Group was the biggest loser as it slumped 25 per cent – down 59.6p to 180p – after market volatility caused a rise in investor redemptions and an 8 per cent drop in its asset base since June.

Edinburgh-based oil explorer Cairn Energy was also out of favour after its latest well to be drilled offshore Greenland found nothing, a month after it warned the well had only encountered minor amounts of oil and gas. Shares dropped 6 per cent or 19.1p to 276.5p.

There was better news from airport scanners and bomb detection firm Smiths, which posted a 12 per cent rise in profits. The group warned three of its divisions were being squeezed by UK government spending cuts, but shares rallied by 21p to 969.5p after figures came in slightly ahead of hopes.

Among the Scottish stocks, David Rolph – the chairman of East Kilbride-based chemicals transportation specialist Interbulk – snapped up 50,000 shares at 6.8p each. Interbulk closed unchanged at 7p, valuing the firm at about £33 million.