Market Report: FTSE 100 wobbles on sovereign debt woes

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The Independent Online

Fears about sovereign debt sent the bulls into hiding as the FTSE 100 veered sharply lower last night.

Equities were sold amid growing anxiety about Greece's fiscal problems. Spreads between Greek and German government bonds rose to record highs following reports of a flight of deposits from debt-laden Greek banks, sparking concern about a repeat of the liquidity crises that destabilised the likes of Lehman Brothers at the height of the financial crisis.

Chris Pryce, the senior analyst for Greece at Fitch Ratings, said Athens should seek international aid, adding: "It is up to the Greek government to go publicly to the European Union and International Monetary Fund and ask for the cash and the support. The matter cannot be long delayed."

The worries overshadowed the confidence evoked by a string of upbeat economic reports in recent days, with evidence of growing confidence in the global manufacturing sector taking a back seat as City screens turned red.

The miners, so often the drivers of gains in London, were hit as talk of a recovery subsided, dampening the mood on commodity markets. Xstrata fell 50.5p to 1,263p, Kazakhmys lost 46p to close at 1,557p, Rio Tinto was down by 85.5p at 3,905p and Lonmin fell 35p to 2,065p. Antofagasta and Anglo American were also behind, losing 23p to 1,045p and 54.5p to 2,906.5p, respectively.

News from the Bank of England, which decided to keep interest rates and the parameters of its quantitative easing programme unchanged, had little impact, with the FTSE 100 buckling under as the sell-off in blue-chips continued, losing 49.36 points to 5,712.7. The FTSE 250, which closed at 10,379.48, was also behind, with the downdraft shaving 40.64 points off the index.

Concerns about Greece were supplemented by some uninspiring news from the US, where the number of people filing new claims for unemployment insurance rose unexpectedly last week. On the plus side, continuing claims fell to their lowest level since late 2008, supporting the view that, apart from some occasional volatility, the unemployment picture in America is improving.

Elsewhere, retailers were broadly lower, falling prey to the dip in sentiment despite some upbeat sales figures from Marks & Spencer, which fell 10.7p to 367.5p. The luxury goods brand Burberry was among the weakest, declining 20.5p to 687.5p after Nomura reiterated its cautious view about the company's shares. "While we remain optimistic that significant growth and margin potential remains in coming years, we believe this is largely reflected in the current valuation," the broker said, sticking to its "neutral" stance.

Nomura was keener on Man, the London-based hedge fund group which led the blue-chips on Wednesday after its flagship AHL fund posted a 3.81 per cent rise in weekly net asset values. Repeating its "buy" recommendation, the broker said that though AHL stood about 12 per cent below its high-water mark, it was encouraged by the fund's performance so far this year and was still optimistic about its prospects. "We remain positive about Man's strategic position and optimistic about its prospects for future growth," Nomura added, reiterating its 300p target price. Man's stock closed down 4.2p at 263.2p last night.

Of the handful of risers on the FTSE 100, British Airways stood out, adding 6.8p to close at 245p after sealing its long-awaited merger with the Spanish carrier Iberia. Also on a firm footing were the inter-dealer broker ICAP, which rose by 6.4p to 384.4p, the drinks giant Diageo, up 5p at 1,125p, and the supermarket group J Sainsbury, which closed 0.7p higher at 334.2p.

Shire, the specialist pharmaceuticals company, and its sector peer GlaxoSmithKline, although weak in absolute terms (they fell by 3p to 1,450p and by 1p to 1,273.5p, respectively) were among the more resilient blue-chip stocks as traders sought positions in the pharma and utilities sectors.

Scottish & Southern Energy was also supported by the move into defensives, losing just 5p to 1,091p despite Goldman Sachs repeating its "sell" recommendation. The broker said SSE shares have "downside risk relative to the sector", because they trade close to fair value in absolute terms compared with the sector's average upside potential of 25 per cent. In the wider utilities space, the Severn Trent water company was up 1p at 1,207p, while Centrica , the owner of British Gas, fell by 2.5p to 298.1p. Further afield, the electronic parts supplier Electrocomponents, which recently said its full-year profits were set to beat expectations, firmed up by 0.1p to 233.1p after Panmure Gordon revised its target for the stock from 200p to 275p, which equates to a 4 per cent target yield. That would leave the stock trading at a premium to the market, the broker said.

Panmure's comments failed to have the same effect on the fashion chain Ted Baker, which fell 27.5p to 525.5p despite the broker assuming coverage with a "buy" view. "Ted Baker shares are tightly held and tend to trade at a 10 to 30 per cent price-to-earnings premium to UK clothing retailers, as is currently the case," Panmure said. "However, a significant valuation gap has opened up between its shares and those of its international peers."