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FTSE flat as German/French bond spread hits record

FTSE flat as German/French bond spread hits record

Britain’s FTSE 100 edged down and other global stock indices fell on Tuesday as a spike in Spanish and French borrowing costs overshadowed upbeat US economic data.

The UK index of blue-chip shares eased 0.03%, or two points, to 5,517 and the All Share index slid 0.14%, or four points, to 2,840.

The yield, or implied interest rate, on 10-year Italian government bonds jumped above the 7% mark above which other eurozone nations were forced to accept bailouts, while the yield on Spanish 10-year paper soared 48 basis points to 6.36%.

Perhaps most worryingly, the yield on the comparable debt of France – the eurozone’s second biggest economy – climbed 21 basis points to 3.66%, after its spread against German 10-year bunds hit a euro-era peak.

Pointing out that Belgian and Austrian government bond yields also rose, John Higgins, markets economist at Capital Economics, said their levels were still far below those of troubled ‘periphery’ nations. ‘But their sudden rise is a worrying sign that investors may be becoming less willing to invest in the eurozone altogether,’ he added.

Other stock markets in Europe also suffered: Germany’s DAX index dropped 0.87% to 5,933, France's CAC 40 index slipped 1.92% to 3,049, and the FTSEurofirst 300 index of top European shares was 0.34% lower at 972.

‘The weakness in bond markets is symptomatic of the lack of a credible plan in the eurozone,’ said David Miller, partner at Cheviot Asset Management.

Until the Germans get off the fence and ask the [European Central Bank] to print euros we can expect the trend to follow in all other eurozone bond markets,’ he added. The International Monetary Fund and the US Federal Reserve were ‘waiting in the wings to help’, he added, but Germany – the region’s reluctant paymaster – needed to take the lead in tackling the crisis.

Burberry (BRBY.L) was the biggest loser on the FTSE 100, pulling back 74p to £13.47, as fears over the global economy offset strong earnings from the luxury goods group.

Financial stocks also fared badly, hurt again by concerns over Europe. Lloyds (LLOY.L) lost 1p to 27.3p and Royal Bank of Scotland (RBS.L) shed 0.7p to 21.2p.

Defensives were among the top gainers: Tate & Lyle (TATE.L) added 13p to 684p and British American Tobacco (BATS.L) took on 50p to £29.43.

Elsewhere, Cable & Wireless Worldwide tumbled 8p to 22.3p, after the telecoms group suspended future dividends.

Yell Group (YELL.L) rocketed up 2p, or 59%, to 5.6p after the Yellow Pages publisher announced that its chairman, Bob Wigley, had acquired an interest in its senior debt of $1 million face value for about £200,000 and bought 2,610,000 Yell shares.

Meanwhile, better-than-expected figures on US manufacturing activity and retail sales failed to prop up Wall Street. The Dow Jones Industrial Average shed 0.56% to 12,011, the Standard & Poor's 500 index gave up 0.41% to 1,247, and the Nasdaq Composite index dropped 0.38% to 2,647.

Sterling weakened 0.52% against the dollar to $1.582, but hardened 0.24% versus the euro to €1.169.

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