Footsie falls 3% amid fears over cuts

MORE than 3 per cent was wiped off the FTSE 100 index yesterday as investors shunned risky assets on fears over the impact of Europe's recent austerity measures.

Miners and banks bore the brunt of the sell-off, which left the Footsie 170.88 points lower at 5,262.85 and saw investors retreat into safer havens such as gold and the dollar.

But the index is still up 139.83 points or 2.7 per cent this week.

The euro dropped to its lowest level since October 2008 against the dollar, while the pound dipped to the $1.45 mark.

Yesterday's share slump, which came at the end of a decent week for the markets, followed worries that deep spending cuts aimed at cutting deficits in Spain, Portugal and Greece will dampen growth across the region.

Wall Street followed suit despite an upbeat batch of economic news in the United States, as industrial production enjoyed a stronger-than-expected gain in April and sales by retailers climbed 0.4 per cent, rather than dropping as per forecasts.

The worries over the stability of the eurozone meant investors returned to the traditional safe haven of gold, which pushed to $1,248 an ounce this week and remained within sight of all-time highs in trading yesterday.

Michael Hewson, currencies analyst at CMC Markets, said there was real concern that growth prospects in Europe will "fall into a black hole, as governments across the eurozone slash spending and increase taxes in order to rein back their exploding deficits".

The Footsie fallers' board was dominated by miners as economic growth fears dominated, with Xstrata slumping 86.25p to 1,010.25p, Rio Tinto dropping 201p to 3,197p and Kazakhmys slipping 91.5p to 1,236.5p.

Among the banks, Barclays was the biggest faller after Credit Suisse highlighted the potential financial impact of regulatory changes due to be imposed on the sector. The stock's decline of 6 per cent or 21.3p to 307.7p came as the Competition Commission confirmed plans to ban the sale of payment protection insurance alongside mortgages, loans and other credit products.

Barclays argued the move would limit rather than enhance consumer options.

Elsewhere in the sector, Royal Bank of Scotland dropped 4 per cent or 2p to 47.2p and Lloyds Banking Group fell 2.8p to 57.7p.

One of the few bright spots in a dismal session came from building supplies firm Wolseley after it forecast better-than-expected profits, helped by cost-saving measures and a return to like-for-like revenues growth in the UK and Canada.

Numis Securities revised its profits estimate from 352 million to 406m and raised its recommendation on the stock from sell to hold.

Wolseley's shares lifted 5 per cent, or 77.5p, to 1,685.5p, leaving the company as the only riser on the Footsie.

Outside the top flight, bookmaker Ladbrokes dropped 1p to 149.8p after it reported a 6 per cent revenues slide during the first four months of the year.

Across its chain of UK stores the amounts staked by more cautious punters fell 10 per cent, while January's VAT hike also squeezed net revenues from its gaming machines.