Profit-takers drag stocks back into red

Thin trading in the run-up to Christmas allowed the top flight to post gains for most of the day as investors shrugged off credit ratings downgrades for seven of the world’s biggest banks and a warning from International Monetary Fund (IMF) boss Christine Lagarde about a potential repeat of the 1930s depression.

But the cheer didn’t last and the FTSE 100 index closed down 13.51 points at 5,387.34 amid profit-taking on defensive stocks.

Chris Beauchamp, an analyst at IG Markets, said: “Sentiment is very fragile and the eurozone worries are impacting it. Anything can happen on the weekend and there concerns about possible downgrades.”

Banking stocks were barely troubled by the downgrade from Fitch, which cited challenging financial conditions as it lowered its credit ratings for Barclays, Bank of America, Goldman Sachs, Citigroup, BNP Paribas, Deutsche Bank and Credit Suisse.

Barclays was 0.95p higher at 171.45p, while Royal Bank of Scotland was up 0.4p at 20p and Lloyds Banking Group lifted 0.4p to 24.5p.

Commodity stocks recovered some of their recent falls caused by the economic gloom. Antofagasta was the biggest riser, up 42p at 1,172p, while Kazakhmys added 27p to 874p.

In currencies, the euro had a better session after members of the junior partner in Germany’s coalition averted a possible crisis by rejecting a bid by rebel members to turn the party against the eurozone bailout fund.

There was also cheer that the Italian government won a confidence vote over the austerity measures designed to shore up the debt-laden country’s finances. The pound was slightly down against the single currency at €1.19 and broadly flat versus the dollar at $1.55.

Shares in Spirit Pub Company, which owns about 1,350 bars, spent much of the session in positive territory after it said like-for-like sales increased by 6.2 per cent in the 16 weeks to 10 December, a faster rate of growth than in the first eight weeks of the period, with food sales up 7.9 per cent.

The company, which was demerged from Punch Taverns in the summer, said demand for food at its traditionally drink-led pubs was boosted by the roll out of its “Flaming Grill” concept, which offers dishes such as “firecracker fajitas”. Shares slipped near the end of the session to finish down 0.5p at 40p.

Punch Taverns – from which Spirit was demerged in the summer – dropped 0.5p to 10.5p even though it said the declines in like-for-like income at its core estate of 2,948 leasehold pubs improved in the same period.

Among the Scottish stocks, Edinburgh-based life sciences firm Angel Biotechnology was flat at 0.28p despite signing a deal to make proteins for US firm TransGenRx.

An early rally in American stocks fizzled out, leaving major averages with modest gains, as Wall Street was torn between hope that US economic data points to better times ahead and fear that Europe’s debt crisis will engulf major world economies.

The Dow Jones industrial average was down 7.57 points, or 0.06 per cent, at 11,861.24. The Standard & Poor’s 500 index closed up 3.47 points, or 0.29 per cent, at 1,219.22. The Nasdaq Composite index was also up, 14.74 points, or 0.58 per cent, at 2,555.75.