Market report: Chinese interest talk weighs on FTSE

A NERVY end to the week was driven by talk of a bail-out for the Irish economy and possible moves to cool Chinese growth.

The prospect that Beijing will hike interest rates spooked mining stocks in London and meant the FTSE 100 index closed almost 18.4 points or 0.3 per cent lower at 5,796.87.

Investors were also disappointed by the lack of firm action from G20 leaders in South Korea, although countries were at least able to pledge that they would avoid the "competitive devaluation" of currencies.

But confidence in banking stocks was lifted by speculation of an EU rescue package to tackle Ireland's debt crisis, with Ulster Bank-owner Royal Bank of Scotland recovering 0.9p to 41.9p after dropping during the previous session on fears over its exposure to an Irish default.

The euro, battered in recent sessions, strengthened against the pound and dollar after a joint statement from five European finance ministers reassured investors that a bail-out from the European Union would not cause them heavy losses.

Michael Hewson, market analyst at CMC Markets, said: "Equity markets have seen quite a bit of volatility on the back of concerns about rising inflation in China and possible fiscal tightening, as well as worries about sovereign debt, with Ireland at the forefront of investor concerns as it seeks to get a new budget passed by 7 December.

"Rumour and counter-rumour about bail-outs have sent equities spinning between negative territory and positive territory throughout the day."

The biggest rise in the top flight came from Rolls-Royce after it appeared to identify the cause of the engine failure that forced a Qantas A380 superjumbo into an emergency landing last week. It revealed that a component in the turbine of the engine sparked an oil fire and led to the release of another part - a turbine disc.

Rolls said the event will have an impact on financial results this year, but investors were relieved that the cost is unlikely to have a major bearing on its rate of growth. Shares in the under-pressure company improved 27p to 611p.

Utility stocks were also higher after British Gas owner Centrica became the latest firm to increase prices for domestic electricity and gas customers.

Faced by a 25 per cent hike in wholesale costs in the past year, Centrica will increase its tariffs by 7 per cent on average from next month. Shares were 4.2p higher at 340.2p, while Severn Trent lifted 8p to 1,444p and United Utilities improved 4p to 628.5p.Scottish & Southern Energy, which announced an increase in its prices last month, added 18p to 1,161p.

Devro shares reacted positively to Panmure Gordon's initiation of coverage with a "buy" recommendation on the Moodiesburn-based food casings maker.

Analysts said their medium-term outlook for the firm was positive, underpinned by the "opportunity to convert manufacturers from gut to collagen casings and by trends in global meat consumption". Shares in Devro gained 4p to 245.5p.

Shares in model railway firm Hornby rose 7p to 150.5p as it offset a drop in half-year profits by saying it was well-placed for Christmas trading.