Victoria Thomson
LONDON'S blue-chip index slipped into the red yesterday after a raft of insurance firms endured a difficult session.
The sector littered the FTSE fallers' board after German reinsurance giant Munich Re issued a profits warning.
In volatile trading, the London market eventually closed 9.7 points, or 0.2 per cent, down at 5,352.6 after a bright start on Wall Street helped claw back the heavier losses seen earlier.
US markets were helped forward by positive economic data as home sales, consumer sentiment and goods orders figures all came in ahead of hopes.
In London, closely watched UK growth figures showed the economy expanded by 0.2 per cent in the second quarter – its slowest pace since the first three months of 2005, although this was in line with City forecasts.
But banks and financial stocks were put under pressure for most of the day in a hangover from previous heavy losses in the US amid speculation that regional US bank Washington Mutual faced a funding squeeze.
Munich added to the worries when it said turmoil in equities markets had forced it to take write-downs in the second quarter, leaving likely earnings for the year well below previous forecasts.
Roger Cursley, UK strategist at Investec, said: "The FTSE will struggle to make progress in the short term. The first sector that needs to recover is the banking side, but the economic news generally is deteriorating.
"Banks would continue to struggle. There remain question marks that the banking sector as a whole in the UK has raised enough additional capital."
Legal & General was worst hit after the Munich Re warning, down 7.1p at 98.6p – a fall of almost 7 per cent. RSA Insurance slipped 6.5p to 128.8p and Aviva shed 21.5p at 490p.
Among the banks, Royal Bank of Scotland was 4.25p lower at 215p, while Lloyds TSB was 6.75p cheaper at 331.25p.
HBOS spent much of the day in negative territory but eventually closed 8.75p better at 310.25p, amid speculation of a break-up bid led by US bank JP Morgan.
Retailers experienced a mixed session after falls on Thursday when official figures revealed a 3.9 per cent slide in retail sales volumes during June.
B&Q owner Kingfisher yesterday dropped 4.1p to 120.2p as it gave back some of the gains seen after Thursday's trading update, but Marks & Spencer crept into the black after earlier falls, gaining 0.25p to 259.75p. Next cheered 18p to 1,034p.
Gains for oil firms failed to lift the top tier, despite BP adding 5p to 517.5p and Royal Dutch Shell up 12p at 1,802p.
In the FTSE 250 index, Rentokil Initial tumbled by 30 per cent after the business services group issued its fourth profits warning since December.
Rentokil said full-year profits were now expected to be £35 million lower, sending shares down 30.75p to 70.75p, eroding modest gains seen since March.
The full article contains 525 words and appears in The Scotsman newspaper.
