A strong show from banking shares has failed to offset losses on the London market as economic developments in the US and China troubled investors.
Wall Street’s Dow Jones Industrial Average was broadly flat after US Federal Reserve Chairman Ben Bernanke warned that failing to reduce the government’s 1 trillion US dollar (£622 billion) deficit could hurt economic recovery.
The FTSE 100 Index shed 21 points to 6069 as the cautious economic outlook in the US added to fears over China’s decision to raise interest rates.
The implications of a rate hike in the world’s fastest growing economy were brought back into the spotlight as China’s markets – including the benchmark Shanghai Composite Index – finished lower after the New Year holiday.
Shaken by the potential impact any tightening of monetary policy in China could have on demand for commodities, investors pulled out of heavily-weighted mining stocks.
Copper company Kazakhmys dropped 37p to 1585p, Eurasian Natural Resources fell 19p to 1010p and Anglo-Chilean Antofagasta was down 29p at 1484p.
Banking shares reacted positively to details of a deal between the Government and the industry, which emerged from the so-called Project Merlin talks.
Chancellor George Osborne said the settlement would see bonuses cut, lending to small business increased and the pay of the highest paid executives published.
Meanwhile, RBS and Lloyds, Britain’s state-backed banks, both revealed details of their chief executives’ bonuses for 2010. Stephen Hester at RBS was awarded £2.04 million while Eric Daniels at Lloyds was awarded £1.45 million. Royal Bank of Scotland was up 0.2p at 44.8p, Barclays added 2.2p to 316.6p and HSBC advanced 8.9p to 727.1p. Lloyds, however, dipped 0.01p to 65.9p.
Household goods giant Reckitt Benckiser was near the top of the fallers’ board after it disappointed investors with fourth quarter results showing a 3% drop in operating profits.