FTSE to fall 1.7% as Cyprus fears rattle markets

The FTSE 100 is set to open sharply down on fears about an exodus of capital from Europe.

Fears heightened over the weekend after the controversy surrounding Cyprus' bailout in which eurozone leaders, the International Monetary Fund and the European Central Bank agreed savers on the island should take a hit in exchange for the much-needed €10 billion bailout.

Following Asian shares lower, equity futures indices suggest the UK's main market will open at 6,306, down 1.71%.

The euro should move lower too, taking fright at the sharp shifts down in Japan, where the Nikkei 225 Index fell 2.7% overnight, and in Hong Kong, where the Hang Seng shed more than 2%.

Even though Cypriot leaders were this morning locked in revised deal talks, analysts said that in the eyes of investors the damage had already been done.

'For all that troika officials and other politicians are trying to claim the "bail-in" of depositors in the Cyprus rescue package was unique and does not set a precedent for others, the truth is that it does,' cautioned Marc Ostwald, of Monument Securities.

Societe Generale also told its clients that while in Cyprus, deposits below €100,000 have no protection, which is a worry in itself, more widely there are fears there is no clear precedent on solving the debt crisis.

'The question raised over the weekend is whether this could trigger concerns for bank depositors in other periphery markets,' the bank told its client.s

It added: 'Much will depend on how local media elsewhere report events in Cyprus, but the fact deposits below the €100,000 deposit guarantee level are also subject to the level is clearly cause for concern.

'More broadly, the concern will be that there is still no standard approach of tackling the euro debt crisis. Greek PSI [private sector involvement] proved a major source of contagion. Although the ESM/OMT today means the euro area has a firewall, the “stability levy” risks delivering anything but what its name suggests.'