FTSE ends higher despite euro fears

Shares in London closed higher tonight despite falls on European markets because of continuing fears over the eurozone debt crisis.

The FTSE 100 Index was up 1% at 5,156 after an Institute for Supply Management report showed growth in the US non-manufacturing sectors accelerated in August.

But further gains were held back as reports suggested Germany was taking a hardened stance against bolstering the European Union's bailout fund. Germany's Dax and the Cac-40 in France lost more than 1%.

Britain's banks, which had enjoyed gains earlier in the session, were also unsettled by the reports, with Barclays down 2%, Royal Bank of Scotland 3% lower and Lloyds ahead just 0.3%.

A move by the Swiss central bank to weaken its currency sparked big gains for the euro. The bank announced it is to peg its currency at 1.20 francs per euro in an attempt to rein back its recent appreciation as investors sought safe havens. The surprise announcement sent the euro 9% higher against the Swiss currency at 1.2025 francs.

Gold, also seen as a safe haven, was initially boosted by the Swiss move and climbed above 1,900 dollars per ounce, but slipped back later.

The US market pared some losses after the ISM report was published but it was not enough to tip the Dow Jones Industrial Average into the black as it sank nearly 2% lower.

The German parliament is debating the amount it should give to the European Financial Stability Facility as doubts emerged over Italy and Greece's willingness to push through austerity measures.

Official figures today also confirmed the eurozone saw weak economic growth of 0.2% between April and June, while Germany saw industrial orders drop 2.8% in July.

In the UK, the market was offered some support from Costa owner Whitbread, which shot to the top of the risers' board after a strong trading update showed the coffee vendor increased like-for-like sales by more than 6% in the first half of the year.

Meanwhile, a jump in gold prices also helped gold miners such as Randgold Resources after the precious metal hit a new record above 1,920 US dollars an ounce earlier in the session.

The FTSE 100 Index was 3.6% lower yesterday, dragged down by the banking and mining sectors, losing £49 billion from the value of top-flight stocks.

A cocktail of recession, banking and eurozone debt fears saw traders flee from riskier stocks and plough into safe haven assets such as gold and the US dollar.

Taxpayer-backed RBS fell more than 12% after it was singled out by a broker as the most vulnerable British target of claims made by the US Federal Housing Finance Agency over the sub-prime mortgage scandal.

Barclays and HSBC, which joined RBS on the list of 17 banks, fell 6% and 3% respectively, while Lloyds Banking Group, damaged by weakened sentiment, fell 6%.

The losses were compounded as borrowing costs for Italy and Spain began to creep up again, signalling weakening confidence in the countries' finances.

PA