German shorting ban upsets markets

GERMANY'S shock ban on "naked" short-selling caused the Footsie to plunge 2.8 per cent yesterday amid a shares sell-off.

The German move late on Tuesday to prevent speculators betting against the eurozone by short-selling government debt and shares of major financial companies sent indices worldwide deep into the red.

Hopes of a fight-back on Wall Street soon faded as the Dow Jones Industrial Average plummeted a further 1.5 per cent in early trading, which sealed the FTSE 100's fate, closing down 149.26 points at 5,158.08.

Geoff Wilkinson, head of research at Mint, said: "Global equity markets are in a fragile situation."

The surprise move from Germany – in the wake of a eurozone crisis triggered by the near-bankruptcy of Greece – sent the euro to new four-year lows against the dollar at one stage.

But market rumours that Europe's central bank was planning to step in and prop up the euro helped the single currency bounce back to $1.24.

Sterling also fell against a stronger euro, down to just over 1.16, but gained ground on the dollar, at $1.44.

Oil prices, meanwhile, slumped to an eight-month low of $68 a barrel after investor concerns that efforts to contain Europe's debt crisis could fail and deep government spending cuts will hurt economic growth.

Edinburgh-based oil and gas explorer Melrose Resources used its first-quarter update to confirm its production guidance for the year at 40 million barrels.

Chief executive David Thomas said the "strong" production performance was underpinning exploration activity in Egypt and the Black Sea. But shares fell 18.6p to 271.4p.

There was only one gainer on the FTSE 100 as it made broad-based losses – defensive stock GlaxoSmithKline was the solitary riser, up 4.5p at 1,177.5p.

Falls were led by several ex-dividend stocks and heavyweight mining stocks. Xstrata was the biggest casualty with a 75.8p, 8 per cent fall to 933.7p.

Home Retail Group, which owns Argos and Homebase, was hit particularly hard as it also turned ex-dividend, meaning new investors will not share in the next shareholder payout. The retailer fell 20.2p to 254.3p.

Scottish & Southern Energy was also caught up in the sell-off despite a "moderate" increase in profits and plans to hike dividends by at least 2 per cent above inflation for the next three years. The firm fell 28p to 1,073p.

British Airways continued to suffer despite services returning to normal after its strike threat woes and ash cloud disruption, with shares down 7.7p to 192.7p.

Land Securities was likewise hit by the wider sell-off, with shares down 25p to 610p, despite annual results confirming a "dramatic turnaround" in the commercial property market.

All Bar One pubs group Mitchells & Butlers bucked the trend in the FTSE 250 after interim profits rose 55 per cent and amid signs of improved sales growth thanks to its strategy to focus on higher-margin food.

Shares in M&B rose 15.1p to 318.5p, while Robinsons drinks giant Britvic was another to post share gains. The stock added 3.3p to 462p following Tuesday's interim results and news of a French acquisition.