London: Britain’s top share index fell 1.1% to a six-year low early on Monday as investors, spooked by anxiety about the financial sector, sold embattled banks, outweighing crude-led gains in energy stocks.
By 0910 GMT, the FTSE 100 was down 35.89 points at 3,494.84 points, after touching its lowest point in six years. The fall followed a gain of 0.87 points on Friday.
Banks took most points off the index as investors continued to shun the troubled sector, as news of further government stake-building added to the grim outlook.
Lloyds Banking Group fell 9.5% as the bank starts meeting investors to garner support to insure £260 billion ($370 billion) of risky assets with the British government, which will get a stake of up to 77% in the bank.
“Shareholders are not only very angry but, of course, they see their role in the business being diluted by the government. The share price reaction is inevitable,” said Jeremy Batstone-Carr, analyst at Charles Stanley. “There is going to be a spillover effect on the other banks.”
Other banks also suffered, with Barclays, Royal Bank of Scotland and Standard Chartered down between 4.3 and 6.5%.
HSBC was the biggest faller, however, tumbling 9.9% to its lowest level since 1996 as investors shorted the stock on hopes it would slide further after its planned rights issue.
The UK banking index is down 8% and has tumbled almost 50% this year after slumping by 57% in 2008.
Gloom on the outlook for the global economy sapped already beleaguered investor morale with Japan swinging to its first current account deficit in 13 years in January while Japan’s Nikkei average hit a 26-year closing low.
Bank of England deputy governor Charles Bean said the central bank has scope to pump more money into the economy if an asset-buying spree unveiled last week failed to kickstart growth.
Meanwhile, the White House’s chief economic adviser Larry Summers said world leaders need to pump more money into the economy in a coordinated effort to boost demand and pull the world out of recession.
Energy stocks added most points to the index, supported by crude prices gaining ground. BP Royal Dutch Shell and Cairn Energy added between 0.3 and 1.7%.
Tullow Oil added 8.9% after it said it had secured a $2 billion loans package that it will use to finance the development of large oil finds offshore Ghana.
However, pervasive gloom on the economy, and hence the demand outlook for raw materials, hit miners as the copper price fell.
Anglo American, Rio Tinto and Xstrata fell between 0.4 and 1.1%.
Defensive pharmaceuticals stocks were also in positive territory as investors looked to assets perceived as relatively safe amid the gloomy economic outlook.