European banks struggled to make gains on Thursday as investors digested the prospect of a state bailout for struggling Italian lender Banca Monte dei Paschi di Siena (BMPS).
The FTSE 100 was trading lower by 0.1% at around 7,034 points, dragged down by the likes of Barclays, which was down 0.6%, and Lloyds Banking Group and HSBC which were each down 0.3%.
The banking sector was feeling the knock-on effects of a rollercoaster ride in BMPS shares, which were suspended after plunging 6% following the market opening, but were trading higher by 2.5% hours later.
The world’s oldest bank saw its shares plunge 17% a day earlier after warning it could run out of cash within four months if it failed to secure fresh capital.
But Italian legislators have since approved a 20 billion euro (£16.9 billion) rescue plan for some of the country’s weakest banks, including BMPS.
Connor Campbell, a financial analyst at SpreadEx, said the bank was “rapidly running out of time” to raise the 5 billion euros (£4.2 billion) it “desperately needs”.
“It’s only managed 2 billion euros so far, with a key Qatari investor choosing not to invest a 1 billion euro chunk – it looks like MPS will be forced into a government bailout.”
Italy’s FTSE MIB was higher by 0.5%, while the French Cac 40 was up 0.1%, and the German Dax was flat.
Sterling dipped 0.35% to a two-week low against the euro at 1.180, and dropped 0.1% against the US dollar to 1.233.
That is despite slightly better-than-expected UK consumer confidence figures, with the GfK index coming in at minus 7 for December despite expectations for minus 9.
Meanwhile, the latest survey from the Confederation of British Industry (CBI) showed that private sector growth hit a one-year high thanks to a pick-up in manufacturing activity, but warned of a “significant” slowdown in the year ahead.
In oil markets, Brent crude was down 0.2% at 54.30 US dollars (£44.01) per barrel after data showed that US crude inventories rose more than expected last week.
In UK stocks, London-listed Indian online fashion retailer Koovs fell 7.6% as the company reported a £9.1 million half-year loss compared with £5.7 million last year.
Koovs said the loss was expected as it continues to increase investment in marketing and technology.
Shares in HSS Hire rose 0.9% after the tool supplier said it would raise £13 million through a share sale to strengthen its balance sheet and fund investment.
The firm, which was forced to issue a profit warning last month, is in the middle of a transformation programme which will see the integration of a new national distribution and engineering centre.