Markets: Footsie plunges into red on recovery fears

LONDON FTSE 100 CLOSE 5,808.89 -55.76

A FURTHER session dominated by fears over the global recovery left the FTSE 100 index deep into negative territory yesterday, despite a rally for oil stocks after a surprise decision by Opec not to increase oil production.

The benchmark index finished 55.76 points or 1 per cent lower at 5,808.89 as comments from US Federal Reserve chairman Ben Bernanke on Tuesday night had a detrimental effect on markets.

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He admitted the US recovery was taking time, but failed to signal further monetary policy action, despite the recent weaker economic data.

The bearish mood was also driven by a fresh warning from Moody's that the UK could lose its cherished "triple-A" credit rating if economic growth remains weak and the coalition government softens its fiscal consolidation targets.

While the message from Moody's was not new, the comments added to nerves in currency markets as the pound slipped against dollar to stand at $1.63. A late recovery meant sterling was slightly higher against the euro at €1.12.

Tammo Greetfeld, equity strategist at UniCredit, said: "The question marks regarding the growth dynamics for the global economy are becoming bigger and are weighing on markets."

The economic fears caused mining shares to slump, with Antofagasta leading the fallers' board, dropping 64p to 1,222.5p.

But Opec's decision caused oil prices, which had slipped in early trading, to rebound above the $100 a barrel mark.

As a result, Shell rebounded from its earlier falls to stand 3.5p higher at 2,136p, while BP pared much of its earlier losses, and was only off 4p to 444.15p.

Other fallers included Primark owner Associated British Foods, which declined 25p to 1,044p after privately-owned rival New Look delivered a grim full-year trading update with operating profits down 40 per cent to 98 million.

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There was better news from Punch Taverns, Scotland's largest pub operator, which said the recent hot weather and its refurbishment programme had helped boost trading.

With its managed estate reporting a 7.3 per cent rise in like-for-like UK sales in recent weeks, shares in the FTSE 250 index company were 4.75p higher at 74.95p, a gain of 6.8 per cent.

The update failed to lift rival Mitchells & Butlers, which lost some of the gains seen in the previous session in the wake of talk that shareholders, including billionaire Joe Lewis, could be plotting a full takeover bid.

Shares in the owner of the Harvester and All Bar One chains had risen by about 4 per cent On Tuesday but were off 4.2p at 327.7p yesterday.After the market closed, the FTSE committee announced that TUI Travel - which owns First Choice and Thomson Holidays - will be demoted from the FTSE 100 and replaced with sugar maker Tate & Lyle, which returns to the blue-chip index for the first time since March 2009.

TUI, which has under- performed the FTSE 100 with a 6 per cent drop over the past three months, closed down 2.6p at 222.7p, while Tate & Lyle - whose shares have risen steadily since March, when its full-year results beat City forecasts - fell 5.5p to 650.5p. The changes will take place on 20 June.

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