London market throws a late wobble

Fresh fears for the global economy and more banking uncertainty wiped out some much-needed gains for the London market today.

Under-pressure banks HBOS and Royal Bank of Scotland closed 31 per cent and 5 per cent higher in the wake of the Government bail-out but the wider market was hit by a weak opening on Wall Street.

After spending most of the day in positive territory, the Footsie finished 1.2 per cent down at 4313.8 - a fall of 52.9 points. It is the lowest finish since August 2004.

Iceland's deepening banking crisis - which has left UK local authorities with hundreds of million of pounds worth of funds at risk - also darkened the mood and the other major exchanges in Europe were also lower.

Although HBOS and RBS finished in the black, Barclays was London's worst performing blue chip stock, down 13 per cent.

There was speculation the group, which is eligible to draw on some of the Government's £25 billion capital hand out, may look to existing shareholders rather than the UK Government for any capital injection.

Ministers have promised oversight on executive pay and dividend policy in return for any investments the Government makes.

HSBC also fell 2 per cent after revealing it was beefing up its balance sheet by £750 million without any help from the Treasury.

David Jones, chief market strategist at IG Index, said: "The London market has had the wind knocked out of it by a slide on Wall Street.

"With the FTSE 100 edging back to the levels seen before all the central banks acted, it's left many people scratching their heads and asking what will it take to stop the slide."

New York's slide came after the Bush administration said it was considering taking ownership stakes in a number of the nation's banks, adding to the general uncertainty surrounding the financial sector.

Tokyo's Nikkei 225 index rose more than 1 per cent but fell back to close down 0.5 per cent to 9,157.49, a five-year low. That followed a 9.4 per cent plunge on Wednesday, its biggest one-day drop since the 1987 market crash.

Hong Kong's Hang Seng index gained 3.6 per cent, while South Korea's index rose 0.6 per cent after earlier rising as much as 2.9 per cent.

On Wall Street, the Dow Jones Industrial Average ended a volatile session down 2 per cent. Investors were shaken by Treasury Secretary Henry Paulson's comment that it would be several weeks before the government's financial rescue package made its first purchases of banks' troubled mortgage-backed assets.

HBOS' proposed merger partner, Lloyds TSB, managed to edge up nearly 1 per cent.

There were other notable share rises with some stocks bouncing back after yesterday's 5 per cent plunge.

Marks & Spencer ended the day 6.25p higher at 226.75p, and British Airways - whose gloomy trading outlook has left shares under pressure in recent days - managed to rise 4.1p to 125p.

But there was evidence of economic fears playing on other retailers, with supermarket chain Morrisons and Thomson holiday firm owner TUI Travel 4 per cent lower.

The big energy companies were off-colour as oil prices remained at eight month lows below 90 US dollars a barrel. BP slid 7.5p to 409.5p, with Royal Dutch Shell slipping 31p to 1412p.

More economic gloom arrived today in the shape of a 13 per cent fall for house prices during the past year, according to Halifax.

The UK's trade gap in goods also remained at a record level in August, as exports failed to receive a boost from the cheaper pound, another downbeat economic update revealed.

The difference between the UK's exports and imports was £8.2 billion in August, the Office for National Statistics said, much worse than the £7.6 billion expected by analysts.

Economists said it was further evidence that the UK economy had already slipped into recession, while the International Monetary Fund's chief also voiced fears over global prospects.