FTSE stalls after Fitch downgrades Italy

European markets paused for breath after the boost from the strong US jobs figures on Friday as ratings agency Fitch downgraded Italy and China released downbeat economic data.

The FTSE 100 softened 1.5 points from the five-year high it closed at last week to trade at 6,483.

The Euronext 100 dipped 2.25 points or 0.3% to 721.5 after Fitch followed the lead of other agencies and reduced Italy’s credit rating by one notch to BBB+ with a negative outlook on Friday.

Fitch blamed the inconclusive result of Italy’s general election last month for its decision. ‘The increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy amidst the deep recession,’ it said.

Fitch expects Italy’s economy to shrink by 1.8% this year after a 2.4% contraction last year. It also increased its estimate of the country’s public debt to 130% of gross domestic product (GDP), up from 125%.

New data out today has revealed Italy’s economy shrank by 0.9% in the fourth quarter last year.

The FTSE MIB index for Italy fell 154 points or 1% to 16,051, dragged down by the country’s banks which were also hit by Goldman Sachs cutting its estimates for the sector fearful of the rise in bad debts.

There was poor news from France where industrial output fell 1.5% although there was better tidings from Germany as exports rose by the biggest amount in five months.

Meanwhile over the weekend China reported that its annual rate of inflation rose 3.2%, higher than the 3% forecast by economists. This may limit the country’s ability to stimulate the economy further. Annual growth in industrial production also hit 9.9% in January and February, an impressive looking number but actually its lowest rate since last October. However, commentators say analysing the data is obscured by the impact of the Lunar New Year holidays last month.

In London, banks were also prominent among the fallers.

Shares in Royal Bank of Scotland (RBS.L), Barclays (BARC.L) and Lloyds (LLOY.L)  fell between 1.5% and 2% after the Parliamentary Commission on Banking criticised the government’s banking reform bill for being too weak. MPs behind the report want a much tougher split between retail and investment banking.

Sage (SGE.L) was the biggest faller, losing 12p or 3.3% to 337.7p after Bank of America Merrill Lynch cut the business software provider to 'underperform' from 'neutral' after a 15% rally in its shares this year.

IMI (IMI.L) was the biggest riser, up 19p or 1.4% to £13.46 after UBS raised its price target for the shares to £11 from 1000p, although it still rates the engineer a ‘sell’.

The online gaming sector was busy ahead of this week's results. 888 Holdings (888.L) rose 4.25p or 2.7% to 162.75p after forming a US joint venture with Avenue Capital Group. The new company, called the All American Poker Network, will launch 888's brands into the US as soon as online gaming starts to be legalised.

Ladbrokes (LAD.L) jumped 15p or 6.6% to 240p after it signed up software developer Playtech (PTEC.L), 17p or 3% better at 569p, to advise it on its digital business. Playtech last year sold a stake in an online joint venture with William Hill (WMH.L), up 2p or 0.5% at 426.8p. 

Gold firmed 77 cents to $1,578 an ounce. The dollar remained strong on currency markets with both the pound and euro easing to $1.4908 and $1.3002. 

See our FTSE data pages for the day's other risers and fallers