Markets: Europe worries still weigh on FTSE

BANKING shares lost up to 5 per cent yesterday as relief over the victory of pro-bailout parties in Greece faded to concern over Spanish borrowing costs.

David Jones, chief market strategist at IG Index said there was a distinct lack of enthusiasm among investors.

“What little excitement surrounded Greece’s elections has now well and truly faded,” he said. “Attention has now shifted away from Athens and moved westwards to Spain, where bond yields are on the rise yet again.”

The FTSE 100 Index had been up more than 1 per cent in early trading as the election result seemed to make it more likely Greece would stay in the euro.

But it surrendered most of its earlier gains to close up just 12.28 points at 5,491.09 as Spain’s implied borrowing costs moved back above the 7 per cent mark at which Portugal, Greece and Ireland needed a bailout.

Fears that Spain may need a full bailout were also heightened by figures that showed the amount of risky loans owned by Spanish banks hit 18-year highs, affecting UK banking shares.

Royal Bank of Scotland was the biggest faller, down 5 per cent, or 12.3p at 235.3p, Lloyds Banking Group was 1.1p lower at 30.2p, while Barclays was off 4.8p at 196.1p.

Hedge fund Man Group bucked the trend as investors decided its change of finance director was a positive move in its attempts to turn around its flagging flagship fund. Shares were up 2.2 per cent at 74.4p.

Tesco rose after it revealed it would pay £40 million to exit its Japanese business. The under-pressure grocer has agreed a deal with the country’s largest retailer, Aeon, that will see it inject the money for restructuring costs but will then have no further exposure to the business. Shares were up 2.7p at 303.8p.

NEW YORK: Crisis-weary investors yesterday scoffed at what had appeared to be a hopeful turn in the European debt crisis – a victory for pro-Europe parties in the Greek election – with US stocks little changed, and borrowing costs for Spain surging to alarming levels.

The Dow Jones Industrial Average closed down 25.35 points, or 0.2 per cent, to 12,741.82. The Nasdaq rose 22.53 points, or 0.8 per cent, to 2,895.33. The Standard & Poor’s 500 index rose 1.94 points, or 0.1 per cent, to 1,344.78.