FTSE slides 2.6 pct by midday on banks and miners

Tag : Dried Persimmon

By Dominic Lau
LONDON (Reuters) - Britain's top share index fell 2.6 percent bymidday on Tuesday, led by banks as investors fretted about problemsat financial institutions despite Washington's plan to stabilisetwo leading mortgage providers.
By 1044 GMT, the FTSE 100 was down 136 points, or at 5,164.4 aftergaining 0.7 percent on Monday. The UK benchmark index has fallennearly 20 percent so far this year.
"The problems they (Fannie Mae and Freddie Mac) face stillhighlight issues which are fundamental to the market," said HenkPotts, equity strategist at Barclays Stockbrokers.
"The reality is everyday investors are looking at ... runawayinflation, falling house prices, weak business and consumerconfidence surveys and that continue to sap away investors'confidence."
Soaring food and fuel prices pushed Britain's inflation rate tonearly double the central bank's 2 percent target in June, boostingtalk of interest rate hikes ahead. European shares were also downsharply by mid-session.
Banks were the biggest losing sector on the FTSE 100, withBarclays, Royal Bank of Scotland, HSBC, HBOS, Lloyds TSB andStandard Chartered down between 4.2 and 8 percent.
Mid-cap Alliance & Leicester dropped 6.3 percent after soaringmore than 50 percent on Monday after Spain's Santander said it hadreached a deal to buy the UK mortgage lender.
U.S. stocks fell overnight as worry about the health of the U.S.banking sector after Friday's collapse of IndyMac outweighedearlier optimism over the government's plan to stabilise Fannie Maeand Freddie Mac. In Asia, Japan's Nikkei average lost 2 percent.
Kazakhmys dropped 2.4 percent. The copper producer, which said onMonday it was holding merger talks with an unnamed firm, deniedspeculation the deal might involve a reverse takeover.
Miners were also standout losers as metal prices eased. BHPBilliton, Rio Tinto, Anglo American, Xstrata, Vedanta Resources ,Eurasian Natural Resources, Antofagasta and Lonmin slipped 1.7 to5.7 percent.
BT Group lost 4.4 percent after the telecom group said it plans toinvest 1.5 billion pounds to roll out super-fast broadband to up to10 million UK homes by 2012 and would suspend its share buybackprogramme from July 31.
Carphone Warehouse shed 7.7 percent and BSkyB slipped 3.4 percentafter the BT announcement.
Also, a survey showed British retail sales values fell last monthafter May's sun-driven boost as consumers cut back on most itemsexcept groceries.
Investors will keep an eye on U.S. retail sales and producer pricesdata at 1230 GMT and Federal Reserve Chairman Ben Bernanke'stestimony to the Senate Banking Committee later in the day for moreclarity on the strength of the U.S. economy.
POWER UP
British Energy rose 1.5 percent to top the FTSE 100 gainers, afterMorgan Stanley lift its price target on the stock and proposedinvestors to go long of the nuclear power operator and short ofDrax.
UK housebuilders sank after a survey showed British house pricefalls eased slightly in June but market conditions remained bleakwith sentiment near record lows.
Redrow, Persimmon, Bovis Homes, Barratt Developments and Bellwayshed between 2.6 and 5.9 percent.
"While the demand for housing has all but dried up, inventory hasnot yet built up significantly," Lehman Brothers said in a note.
"However, with mortgage supply reduced, credit conditions tighterand unemployment very likely to rise as the economy slows, thelevel of forced selling could rise, adding further downwardpressure to house prices."