US budget stalemate has global effect

BANKING and resources stocks bore the brunt of the sell-off yesterday as traders fretted over the eurozone debt crisis and America’s inability to agree its budget.

Lloyds Banking Group was among the biggest fallers in the Footsie after it admitted a key executive at Royal Bank of Scotland had gone back on plans to join the company.

Nathan Bostock’s decision to remain as chief risk officer at RBS was announced at the same time as Lloyds detailed contingency plans in case chief executive Antonio Horta-Osorio fails to return from sick leave at the end of this year.

The move, which would see non-executive director David Roberts become stand-in boss, failed to calm investor nerves as shares slumped 1.8p or 7 per cent per cent to 23.4p. RBS was down 4.9 per cent or 1.01p at 19.56p.

The wide-ranging sell-off in London saw just one stock, Shire, finish in positive territory, up 3p at 2,008p.

Shares in London hit their lowest level since the start of October – down 2.6 per cent or 140.34 points at 5,222.60 – marking a sixth-straight session of losses for the FTSE 100 index.

One London-based trader warned that there could be worst to come. He said: “If the index fails to hold on to the 5,200-5,175 level, the 5,000 level is probably where the index is going to aim for.”

A cross-party panel of Democrats and Republicans set up to deliver at least $1.2 trillion in cuts over the next decade is expected to admit defeat this week, triggering across-the-board cuts that investors fear will impact on US growth and jobs.

The pound was down against the dollar at $1.57 after the greenback was seen as a safe haven amid the chaos. Sterling was also lower against the euro at €1.16.

Last week, London’s benchmark index fell by about 3.3 per cent after failing to finish in positive territory in any of the five sessions.

In Europe, ratings agency Moody’s added to the pressure on policymakers by signalling that France’s “triple A” credit status was under threat.

Miners had a torrid session, particularly after Chinese vice-premier Wang Qishan, who oversees trade and finance, predicted a drawn-out slowdown for the world economy. Silver miner Fresnillo was down 7 per cent or 118p at 1,596p and Kazakhmys slipped 55p to 807.5p.

Oil and gas stocks also took a battering, with Scottish Gas-owner Centrica down 2.8p at 286.1p despite signing a deal to buy North Sea assets from Norwegian energy giant StatOil.

The price of a barrel of Brent crude fell by $1.62 to $105.94 on the back of fears over the strength of the global recovery.

Edinburgh-based explorers Bowleven and Cairn Energy dropped 11.9 per cent or 11.25p to 83p and 10.6p or 3.7 per cent to 278.7p respectively.

Outside the top flight, Phoenix Group was 7 per cent higher after the owner of closed life assurance policies said it was in talks with private equity firm CVC about a potential takeover.

Talks with Resolution over a potential £1.2 billion deal for Phoenix came to nothing but, with CVC still in the frame, shares in the former Pearl branded business rose 32.9p to 525p. Resolution was the biggest faller in London’s blue chip shares index, down 18.7p at 230.2p.