The threat of a ratings downgrade for Spain sent blue-chip banks lower on Wednesday and dragged the FTSE 100 Index back from Tuesday’s two-and-a-half-year high.
Barclays was the worst hit, down 3%, as investors fretted over its exposure to Spain’s economy following a Moody’s report warning it had put the country’s rating under review.
The wider Footsie also fell into the red – down 24.1 points to 5867.2 – in a weaker performance following gains on Tuesday that sent the top tier to its highest position since June 2008.
Sentiment was not helped by less cheery economic news as figures revealed unemployment climbed to 2.5 million in the quarter to October.
And in the US, eurozone debt worries were set to weigh on stocks, with futures trading suggesting the Dow Jones Industrial Average on Wall Street was heading for early session falls.
Credit ratings agency Moody’s spooked markets after it said it may downgrade Spain’s debt because of the country’s high financing needs in 2011 and its shaky banking sector.
This fuelled worries over the sovereign debt exposure of UK banks, with Barclays seen as being one of the most exposed. The group’s shares fell 8p to 264.1p, while HSBC dropped 5.3p to 666.4p and part-nationalised Royal Bank of Scotland shed 0.3p to 41.1p.
The biggest rise in the top flight came from Lakeside shopping centre owner Capital, which climbed 3% or 10.9p to 407.2p after US firm Simon Property Group wrote to the company outlining its plans for a £2.9 billion takeover. The move is likely to add to pressure on Capital’s shareholders to veto the UK firm’s proposed takeover of the Trafford Centre in Manchester.
Outside the top flight, the rapid ascent for shares in fashion firm Supergroup juddered to a halt after the company posted maiden interim results. Half-year profits rose 68%, but shares slumped 16% after the Superdry owner warned rising raw material prices could hit earnings next year. Shares fell 264p to 1364p, taking the stock back to the level seen in late October.
Elsewhere, Spode and Royal Worcester ceramics group Portmeirion soared 11% or 50p to 485p after it said demand from overseas buyers would ensure 2010 was a record year for sales. Seymour Pierce analysts raised 2010 profit forecasts from £4.5 million to £5 million on the back of its bullish trading update.