(Update) The FTSE 100 tumbled with financial stocks sliding as problems at Portugal's Banco Espirito Santo reignited concerns about the banking sector.
The UK blue-chip index fell 47 points, or 0.7%, to 6,671 points, with financial stocks bearing the brunt of losses after shares in Espirito Santo were suspended by Portugal's stock market regulator at lunchtime, having fallen more than 17% in the morning.
Investors are concerned about the health of the bank, which has already declared its parent company is in a 'serious financial condition'. Parent firm Espirito Santo International earlier this week delayed interest payments on some of its short-term debt securities.
Online stockbroker Hargreaves Lansdown (HRGV) dropped 48p, or 4.1%, to £11.32, while Barclays (BARC) shed 3.4p, or 1.6%, to 208p. Insurer Aviva (AV) fell 10.1p, or 2.1%, to 483.8p while fund management group Aberdeen Asset Management (ADN) dropped 7.4p, or 1.6% to 448.1p.
'The financial sector is leading declines with almost every FTSE 100 financial stock in the red,' said Jasper Lawler, market analyst at CMC Markets UK.
'Banks in particular are under massive scrutiny with European banks being targeted by the US regulators while banks in the US and Europe face tougher capital requirements as part of bank stress tests.'
Portugal's PSI 20 share index slid nearly 4% while Italy's FTSE MIB index dropped by 1.3% and Spain's Ibex index fell 1.8%. Markets were also dragged lower by data from Italy showing its steepest monthly decline in industrial output since November 2012.
Those woes countered earlier market optimism sparked by the US Federal Reserve’s June policy meeting, which suggested the central bank was in no hurry to raise interest rates. The Bank of England today confirmed, as expected, interest rates would be kept on hold at 0.5%.
London Stock Exchange Group (LSE) fell 61p, or 3.1%, to £18.96, amid reports sovereign wealth fund Qatar Holding had sold around £260.1 million-worth of shares in the company ahead of its $1.6 billion (£935 million) rights issue.
British Airways owner International Consolidated Airlines Group (ICAG) and EasyJet (EZJ) continued their week of see-sawing, dropping 2.4% and 1.2% to 332p and £12.72 respectively. Yesterday they had pared some of the losses made earlier in the week off the back of a profit warning from France KLM (AIRF.PA).
The FTSE’s falls come despite solid corporate updates from a number of stocks on the index. Luxury retailer Burberry Group (BRBY) topped the risers, adding 47p, or 3.3%, to £14.66 after reporting a 12% rise in revenues.
Barratt Developments (BDEV) reported its full-year results would be at the top end of market expectations, with profits of £390 million, more than double last year’s £192 million. Shares rose 3p, or 0.8%, to 368p.
Associated British Foods (ABF) fell despite strong results, dropping 32p, or 1.1% to £29.68 after raising its earnings guidance following a 22% rise in sales from its discount clothing retailer Primark. However, weakness in its sugar business, with sales falling as sugar prices dropped, has continued to take its toll.
Figures from the Office for National Statistics (ONS) meanwhile provided another blow to investors, showing the UK’s trade deficit had worsened in May, swelling from £8.8 billion in April to £9.2 billion. A spike in aircraft imports was blamed. The pound slipped 0.2% to $1.7119.
‘A modest rise in exports in May was offset by a stronger rise in imports, suggesting UK trade will have acted as a drag on the economy in the second quarter,’ said Chris Williamson, chief economist at Markit.
Economists had forecast a May deficit roughly in line with April data. The surprise widening follows a shock drop in manufacturing output reported by the ONS earlier in the week. As with manufacturing, official balance of trade data contrasts with survey results which are pointing to positive sentiment.
‘It’s hard to square the message from the official data with the surveys,’ said Williamson. ‘Certainly the survey data sit more in line with the official data on manufacturing output over the past year. Despite a surprise 1.3% drop in production in May, output remained a buoyant 3.7% higher than a year ago. It’s hard to see how such growth is being sustained without some support from export sales,’ he said.