Risk-aversion sends Footsie lower

BANKS and miners pushed the FTSE lower yesterday as nagging worries over the sustainability of the economic recovery and lighter-than-usual turnover weighed on the index.

The FTSE 100 closed down 16.01 points or 0.3 per cent at 5,195.28 - its lowest close in more than a month, having ended 1.7 per cent lower on Thursday.

Banks fell as appetite for risk remained suppressed after Thursday's data showing new US jobless claims scaled a nine-month high dented confidence. Barclays dropped 0.6 per cent to 317.4p and Royal Bank of Scotland was down 1.05p at 45.42p.

This was despite more gains for gas explorer and production outfit BG Group, as speculation continued to swirl in the market that two possible bidders were willing to pay at least 16 a share, valuing the company at about 54 billion.

BG rose 6 per cent or 61.5p to 1,091.5p, contributing to a 10 per cent improvement over the past week, as traders pondered the possible interest. Shell, ExxonMobil and Petrobas were among the names being mentioned in the City.

The speculation comes in the week that mining giant BHP Billiton launched a bid worth $40 billion (25bn) for Canada's Potash, which is the world's biggest fertiliser producer. BHP closed up 11p at 1,821p

Michael Hewson, market analyst at CMC Markets, said: "In the absence of any economic data to turn sentiment around, concerns about a double-dip recession in the US continued to dominate."

Building supplies group Wolseley, which gets a large proportion of its revenue from the US, was among the top fallers, down 3.3 per cent at 1,280p.

London's blue chips, which have shed 1.3 per cent this week - their second consecutive weekly fall - traded just 68 per cent of their average 90-day volumes yesterday.

Joshua Raymond, market strategist at City Index, said: "We are now deep into the main holiday month which means that there are minimal volumes in the market.

"As a result, many moves are being overly exacerbated."

Raymond added that the FTSE needed to stay above the near-term support level of 5,178, where he has seen clients leave a number of "buy" orders hoping to capitalise on any small recovery. A fall below there could take the UK index down to 5,104.

Mining stocks were dragged down by commodity prices. Eurasian Natural Resources slipped 2 per cent to close at 868.5p after Citigroup cut the stock to "hold" from "buy" on valuation grounds.

Among midcaps, Aberdeen-based Dana Petroleum added 6.1 per cent to end the day at 1,798p after state-run Korea National Oil Corp (KNOC) made a hostile $2.9bn cash bid for the company.

Edinburgh-headquartered Cairn Energy, also involved in M&A activity, added 0.2 per cent, closing at 460p.

Indian oil minister Murli Deora said his department has sought details on the proposed acquisition of a majority stake by Vedanta Resources in Cairn India, the local arm of Cairn Energy. Vedanta fell 32p to 2,041p.

Outside the top flight, shares in Mitchells & Butlers fluctuated after it agreed to sell 333 pubs to a private equity firm. The shares dipped 2p to 293.8p.