China’s decision to raise interest rates has continued to trouble investors as the FTSE 100 Index closed in the red.
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.
The FTSE 100 Index closed 39 points down at 6052.2, as cautious traders also awaited Thursday’s interest rates decision from the Bank of England’s Monetary Policy Committee. The Bank is widely expected to hold rates but the possibility of a hike has unnerved investors.
Sentiment was also weakened by comments from US Federal Reserve Chairman Ben Bernanke, who warned that failing to reduce the US government’s one trillion US dollar (£622 billion) deficit could hurt economic recovery.
Mining stocks suffered as falling metal prices combined with investor fears over the impact that the tightening of China’s monetary policy may have on demand for commodities.
Copper company Kazakhmys dropped 53p to 1569p, Eurasian Natural Resources fell 17p to 1012p and Anglo-Chilean Antofagasta was down 57p at 1456p.
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 44.3p, Barclays added 2p to 316.4p and HSBC advanced 4.9p to 723p. Lloyds, however, dipped 0.5p to 65.4p.
There was further woe in the newspaper industry after Daily Mail & General Trust (DMGT) reported 332 consumer media job losses for the three months to January 2 as revenues and circulation continued to fall. Shares dropped nearly 3% or 17.5p to 577p.