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Business News

Lloyds shares dip after landmark government stake sale

Stock was down 2% or 1.9p at 75.4p as City institutions digested a £3.2bn sale

Lloyds Banking Group shares fell back today after big City institutions digested a £3.2 billion slug of the company in a landmark share sale by the Treasury.

The stock was down 2% or 1.9p at 75.4p, although the price was still above the 75p paid last night by a global spread of firms for a 6% stake in the bank.

The wider FTSE 100 Index was also lower, off 26.9 points to 6595.9, as the prospect of a modest tapering of asset purchases by the US Federal Reserve on Wednesday continued to play on the minds of investors.

The forecast cut of 10 billion US dollars (£7.5 billion) in the quantitative easing (QE) programme will represent the first shift in the direction of policy since the Federal Reserve last raised interest rates in 2006.

The prospect of tapering from its current 85 billion US dollars has caused volatility in markets ever since Federal Reserve chairman Ben Bernanke suggested in May that asset purchases might be slowed later in the year.

Alongside Lloyds, fellow state-backed lender Royal Bank of Scotland was down 3.7p at 362.8p after UBS downgraded the stock to neutral from buy.

But analysts expect the Treasury to achieve a rapid exit from Lloyds following strong demand for last night's share placing, which was the second largest accelerated share sale behind Barclays in 2009.

Investec analyst Ian Gordon said: "We regard the Government's timing as impeccable, and it appears credible to suggest that it could yet be out in full by the election."

Elsewhere in the banking sector, Barclays fell 7.5p to 297.8p as it emerged that a paperwork error could cost it as much as £100 million due to the need for interest repayments to around 300,000 personal loan customers.

In other corporate news, shares in department store chain Debenhams were higher after it said it improved market share during the final quarter of its financial year. Like-for-like sales were 1.9% higher in the quarter to August 31, which was in line with City forecasts for a rise of around 2%.

Despite the company's warning that the market remains "highly competitive", shares in the retailer rose a penny to 104.2p.

Meanwhile, transport rivals Go-Ahead and Stagecoach were around 2% higher after upgrades from broker JP Morgan. Shares rose 27.5p to 1593.5p and 6.15p to 336.45p respectively.