Profit-takers move in to halt rally

The Footsie fell 31.46 points or 0.6 per cent to close at 5,668.45, wiping out the morning’s gains.

Chris Beauchamp, a market analyst at IG Index, said: “The twin perils of the eurozone crisis and the possibility of slowing Chinese growth have been enough to cause investors to lock in some of Tuesday’s gains.”

The pound reached a 12-month high against the euro at €1.21 after a UK government bond auction was oversubscribed and the cost of insuring against a Spanish default rose.

David Miller, a partner at Cheviot Asset Management, said: “Foreign buyers view Britain as a safe haven and a beacon of sanity in Europe.”

In London, banking stocks took a tumble as sentiment was dampened by more problems for European lenders, with Italy’s UniCredit launching a heavily-discounted rights issue to strengthen its cash reserves.

Royal Bank of Scotland was down 0.25p at 20.76p, Lloyds Banking Group was 0.44p lower at 26.6p and HSBC fell 4.9p to 500p.

Further fears over the eurozone debt crisis pushed defensive stocks back into play, with United Utilities up 9p at 620.5p and water supplier Severn Trent surging 17p to 1,537p.

Retailers were in sharp focus after Next admitted that its Christmas sales figures were “disappointing”. Next was one of London’s best performing stocks during 2011 but yesterday fell 3.1 per cent or 85p to 2,656p.

Fellow high street stalwart Marks & Spencer, which posts figures next week, fell 8.2p to 308.8p, while B&Q-owner Kingfisher shed 1.2p to 248.8p.

Kesa Electricals dropped 6.9 per cent or 4.95p to close at 66.65p after software giant Microsoft accused the Comet chain – which Kesa is selling to private equity firm OpCapita – of counterfeiting its Windows discs.

In the US, stocks barely budged, letting investors hold on to gains from a strong opening to the year. The Dow rose 21 points to close at 12,418, following a 180-point gain on Tuesday. The Standard & Poor’s 500 index and Nasdaq were nearly flat at 1,277 and 2,648, respectively.