FTSE: Investors' taste for risk diminishes

BRITAIN'S benchmark share index slid 1.5 per cent yesterday as fears over the sustainability of a global recovery hit commodity-linked shares and banks while risk appetite waned.

The FTSE 100 closed down more than 78 points at 5,100.23, its lowest closing level in almost a month after shedding 1.3 percent in the previous session.

A statement late on Wednesday by the US Federal Reserve aroused negative sentiment after it scaled back its assessment of the pace of economic recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile financial markets in the light of Europe's sovereign debt woes.

Michael Hewson, market analyst at CMC Markets, said: "There is a trend line support through 5,100 from the recent lows around 4,800, but a break of this level could well increase the bearish pressure building up on the downside."

Elsewhere in Europe, France's CAC 40 and Germany's Dax were down 2.4 per cent and 1.4 per cent respectively.

Sterling enjoyed a better day however, creeping above $1.50 to the pound at one point and moving to an 18-month high of 1.22 at one stage.

In London, miners had been expected to rally following new Australian prime minister Julia Gillard's comments about seeking negotiations with the sector over a proposed super tax.

Instead, the heavyweight sector proved the main drag on the Footsie as Eurasian Natural Resources fell 44p to 967p and Kazakhmys dropped 59p to 1,110p.

Defensive stocks such as mobile phone giant Vodafone – up 1.85p to 142.9p – were on the front foot, with British Gas owner Centrica rising 8.3p to 307.3p, helped by recent revived speculation of bid interest from Russian giant Gazprom.

But BP shares failed to hold on to an earlier bounce back, down a further 8.25p to 325.25p after this week hitting their lowest level since the Gulf of Mexico disaster struck in April.

In corporate results, DSG International shares were slightly lower, even though full-year profits of 90.5 million came in just ahead of market hopes. The share price fall of 0.35p to 27.15p followed a decent session for the consumer goods sector on Wednesday.

Shares in supermarket giant Tesco gained 3.5p to 400p as it emerged that investment guru Warren Buffett had raised his stake in the group to more than 3 per cent.

According to a regulatory filing published yesterday, Buffett's investment firm Berkshire Hathaway bought some two million shares in the world's third-biggest retailer to take its stake to 242 million, or 3.02 percent of the total.

Shares in transport group Go-Ahead were 119p lower at 1,200p after it said revenues from its new high speed services in Kent had failed to match up to expectations due to the impact of recession.

Stockbroker Shore Capital reduced its profit forecast for Go-Ahead by 5m as a result of the more cautious forecasts in the rail segment.

A weak session for Britain's banking heavyweights saw Lloyds drop 2.39p or 4 per cent to 56.31p while Royal Bank of Scotland slipped almost 3.3 per cent or 1.53p to close at 45.19p.