Lloyds uncertainty over toxic debts weighs on FTSE

THE FTSE 100 index was on the slide yesterday after nervous investors baled out of Lloyds Banking Group and figures showed the US economy contracted at its fastest pace for more than 25 years.

Shares in Lloyds tumbled more than 22 per cent after the markets were left in the dark over the bank's involvement in the scheme to insure billions of pounds of toxic assets.

With Lloyds leading the top flight fallers, the Footsie dipped as low as 3,760 during afternoon trading before recovering some ground to close 2 per cent lower, off 85.5 points at 3,830.1.

Investors were also shaken by figures showing America's output shrunk by a mammoth 6.2 per cent in the final three months of last year, further heightening fears over the depth of the recession for the world's biggest economy.

Paul Webb, group head of trading at CMC Markets, said: "It's been a rather turbulent few days of trade but the overriding sentiment seems to have been stocks have become over-sold of late and any rebound is more down to bargain hunters than an improvement in fundamentals."

In London, Lloyds' plunge of 16.7p to 58.3p unwound almost all the gains it achieved on Thursday after RBS announced its participation in the taxpayer-backed scheme on terms seen as favourable to the bank.

The bank's shares were impacted by its annual results, which unveiled 10.8 billion losses at HBOS and spooked investors with the scale of bad debts at its acquisition's corporate and retail arms.

Royal Bank of Scotland also lost the ground it had gained on Thursday, with a drop of 20 per cent or 5.8p to 23.2p.

Barclays, which may also participate in the asset protection scheme, fell 19.6p to 93.4p, although HSBC suffered a less steep 7 per cent fall. Shares fell 35.75p to 491.25p ahead of annual results due on Monday.

Among the few risers, defensive stocks were in vogue amid the turmoil in the banking sector. Imperial Tobacco was one of the leading risers, up 29p to 1,680p, while British American Tobacco cheered 32p to 1,797p.

Elsewhere, shares in bookmaker William Hill fluctuated after it said revenues increased 9 per cent in the first eight week of 2009 – offsetting a 3 per cent fall in operating profits and the withdrawal of the company's full-year dividend.

Shares in the company, which also announced plans for a 350 million rights issue, hit positive territory before later retreating to close 10.5p lower at 236.25p, a drop of 4 per cent.

In the FTSE 250, property website Rightmove jumped 8 per cent, or 17.5p, to close at 225p after it posted a 40 per cent rise in annual profits and said plunging housing prices were tempting buyers back into the market.

ITV was one of the leading fallers in the FTSE 250 index as investors prepared for next week's full-year results and details of possible asset sales. Shares ended the week down 6 per cent, or 1.5p, at 24.75p.