Euro-gloom weighs on UK markets

Commodity-based stocks and banks dragged the market lower yesterday amid renewed fears that the eurozone debt crisis would push western economies into recession.

London’s FTSE 100 Index closed down 1.6 per cent at 5,129.62, although it had dropped more than 2 per cent earlier in the day.

David Jones, chief market strategist at IG Index, said: “Despite a slight recovery in the afternoon session, stocks in the UK have remained out of favour making for yet another volatile start to the week.”

Fears that Greece will default on its debt were fuelled when the country’s deputy prime minister said it could run out of money next month unless it meets the EU’s bail-out conditions.

This sparked a sell-off for banking stocks across much of Europe – Germany’s Dax fell 2 per cent and the Cac40 in France dipped 4 per cent – although those in the UK were relatively resilient, despite news of the £7 billion cost of the Independent Commission on Banking’s proposals for a protective firewall for retail operations.

Lloyds Banking Group fell 0.5p to 30.6p despite being given a boost as the ICB stopped short of recommending the taxpayer-backed bank must sell more branches than the 632 it has been told to offload by EU regulators. Barclays dropped 2.35p to 141.65p, and taxpayer-backed Royal Bank of Scotland fell 0.7p to 20.8p.

Mining stocks also bore the brunt of the selling as a result of concerns the eurozone crisis could hit global demand for metals.

Miners fell in tandem with copper prices, which hit a one-month low on worries about the world economy and demand slowdown.

Copper group Antofagasta and silver and gold producer Fresnillo also ran into heavy profit taking. Antofagasta dropped by 40p to 1,249p and Fresnillo shed 7 per cent, or 161p, to 1,989p. Eurasian Natural Resources slumped 22.5p to 622.5p.

Company news took a back seat due to the frenetic eurozone speculation and banking reform activity.

Integrated oils also dragged on the UK’s leading index, with BG Group down 2.2 per cent, or 27.5p, at 1,242p. Royal Dutch Shell also lost 27.5p, to 1,990p, while BP was down 2.5p at 375.5p.

The pound dropped to $1.58 against the dollar, its lowest level since January, as the greenback was boosted after being seen as a safe haven amid the turmoil. Sterling was also down against the euro, at €1.16.

Associated British Foods, the owner of the discount fashion chain Primark, slipped 18p to 1,052p as it said the chain was having to discount more than expected.

The budget retailer’s like-for-like sales rose by 3 per cent in the year to 17 September but it needed offers to get customers spending, which will hit operating margins by more than previously anticipated.

Glasgow-based patent law firm Murgitroyd was one of few stocks to rise yesterday after revealing a 7.2 per cent increase in profit in the last financial year, and upping its dividend accordingly. Shares gained 4 per cent or 12.5p to close at 330p.