Rally fizzles out as euro fears linger

Banks led London’s blue chip shares index marginally lower yesterday as investors waited for further details about the eurozone rescue plan.

The FTSE 100 index was down 0.2 per cent as it surrendered earlier gains, with taxpayer-backed Lloyds and Royal Bank of Scotland among the biggest losers.

Michael Hewson, an analyst at CMC Markets, said: “European markets spent the last day of a very positive week with a softer tone, consolidating the gains seen over the past few days, as investors mull their next move.”

Traders demanded high interest rates to buy Italian bonds, which reminded markets that one of the eurozone’s biggest economies is still struggling under its debt mountain.

The pound was up against the euro at €1.14 after the single currency slipped back amid concerns about Italy. It was also up against the dollar at $1.61.

The Footsie had surged earlier in the week as EU leaders started to make progress on the debt crisis, with banks agreeing to a 50 per cent haircut on Greek debt and plans to boost the eurozone bail-out fund to €1 trillion (£880 billion).

But the final details of the plan still need to be agreed, with Klaus Regling, head of the EU bail-out fund, thought to be in China seeking financial assistance.

Banks led Thursday’s rally but ran into profit-taking yesterday amid worries that eurozone deal could yet unravel.

Barclays which had been up 3 per cent in early trading, building on the previous day’s 13 per cent gains, fell 4 per cent, or 8.8p at 201.2p.

Royal Bank of Scotland also lost earlier gains, down 1p at 26.3p, and Lloyds was the biggest loser, falling 5 per cent, or 1.9p at 35.2p. Only HSBC defied the trend, up 10p at 565.3p.

In corporate news, advertising giant WPP was slightly higher, up 11p at 688p, after the company reported a rise in third-quarter revenue thanks to strong growth in Asia Pacific, Latin America, Africa and the Middle East, and Eastern Europe.

Organic revenue – an industry measure that strips out acquisitions, disposals and currency effects – rose 4.7 per cent in the three months to 30 September.

Outside the top flight, shares in car dealership Lookers were up 1 per cent, despite it reporting a 10 per cent drop in private new-car sales as plummeting consumer confidence weighed on the business.

The Manchester-based group, which operates 119 dealerships, said overall new-car sales were up 2 per cent but this was boosted by a 30 per cent surge in fleet sales between 1 July and 27 October. Shares were up 0.8p at 54p after it said its figures were in-line with expectations.

Shares in British Airways and Iberia owner International Consolidated Airlines Group (IAG) dipped 3.2 per cent as UBS reduced its target price from 260p to 240p, after cutting its profit forecasts in a preview of third-quarter results due on 4 November. IAG shares were down 5.6p at 174.6p.

Scottish oil firms, which had soared during Thursday’s rally, were muted. Cairn Energy was down 0.6p at 310.1p and Melrose Resources off 2p at 122p. But Bowleven gained 4.25p to 106.25p after saying that Deutsche Bank had built a 5 per cent stake in the Edinburgh firm.