Banks and BSkyB dominated losers on the FTSE 100 as investors looked for direction on big picture questions such as the Italian bond yields, eurozone talks on a partial Greek default and prospects for the US economy after Friday’s poor jobs data.
The FTSE 100 dropped 0.18%, or 10.8p, to 5,979.8.
BSkyB (BSY.L) tumbled a further 6.9%, or 52p, to 698.5p as police widened their inquiries into the phone hacking scandal at the News of the World and Labour threatened to hold a parliamentary vote on News Corp's bid to take control of the satellite broadcaster.
Commenting before the market opened Ian Whittaker of Liberum Capital said further weakness 'could be a good entry point for fundamental investors'.
Banks weakened ahead of stress test results from the European Banking Authority on Friday. Barclays (BARC.L) fell 1.7%, or 4.1p, to 239p; Lloyds (LLOY.L) lost 1.3%, or 0.6p, to 45.9p; and RBS (RBS.L) fell 1.7%, or 0.63p, to 36.5p.
The biggest gainer was International Power (IPR.L), recovering 2.66%, or 80p, to 309.3p after Australia's new carbon tax proved to be less punitive to energy companies than had been feared.
Northumbrian Water (NWG.L) jumped 4.7%, or 20p, to 446.3p after Li Ka-shing, Hong Kong's richest man, pitched his takeover approach at 465p per share, 21% higher than previously expected. This values the utility at £2.4 billion. Severn Trent (SVT.L) shares gained 0.8%, or 12p, to £15.11 in response.
Harry Potter publisher Bloomsbury Publishing (BLPU) fell 3% or 4p to 129p as it complained of difficult retail conditions and announced the £20.1 million ($32.3 million) acquisition of Continuum International Publishing. It said the deal would boost its academic and professional division, an area which it wishes to expand.
Recruiter Michael Page International (MPI.L) gained 11p, or 2%, to 545p after posting a 32% increase in second quarter profits. It expects full year profits to be broadly in line with current market expectations of £111.7 million.
Centamin Egypt (CEY.L) nudged 0.24% or 0.3p higher to 127p after making a recommended £7.48 million offer for Sheba. The company, which is listed on the Plus exchange, owns and operates three gold mines in northern Ethiopia. Although this is Centamin's first move outside Egypt, the Sheba mines fall within the Nubian Shield, which includes the miner's flagship Sukari gold mine.
On the home front on the UK economy a survey of 6,600 companies by the British Chamber of Commerce showed that the UK economy remains weak despite slight growth.
Worse-than-expected annual Chinese inflation figures of 6.4% released over the weekend contributed to the jitters.
But the debt crisis and potential contagion have forced themselves back into the limelight. European markets were down, in Germany the DAX dropped 0.9% to 7,333 and in France the CAC fell 0.97% to 3,875.
Today eurozone officials are considering a major change in strategy after Italian bond yields rose unexpectedly last week triggering contagion fears. A new strategy being considered is to allow a default and a lessening of the debt burden on Greece and ditching the French plan for banks to renew their Greek bonds, which some saw as adding to the Greek debt burden.
But the default-or-not-default debate is at risk of becoming a side issue according to Michael Hewson at CMC markets: ‘EU leaders will also be discussing ways to try and assuage market concerns about Italian finances in the knowledge that the EFSF (European Financial Stability Facility) doesn’t have the firepower to deal with a contagion spreading to Spain or Italy. In signs of increasing stress in Italian financial markets the regulator has insisted that short sellers disclose their positions in an attempt to bring transparency to the markets.’
Gary Jenkins, head of fixed income at Evolution said: ‘Italy is still a long way away from the tipping point but it is worth remembering how quickly bond yields can get out of control by looking at what happened to Greek, Irish and Portuguese 10 year yields.’
Brent crude oil fell 0.5% to $117.72 per barrel, copper fell 0.4% to $4.39 per lb and gold gained 0.23% to $1,545.
The pound fell 0.15% against the dollar to $1.60 and gained 0.13% against the euro at €1.12.