Overseas banking fears hit FTSE 100

Engineering stocks were boosted by a major deal involving UK oil and gas services firm Wood Group but could not stop the FTSE 100 Index from slipping into negative territory.

FTSE 250 firm Wood Group has sold its well support arm, which makes electric submersible pumps used to maximise oil production, to General Electric (GE) for 2.8 billion US dollars (£1.75 billion).

But the FTSE 100 Index dipped 16.7 points to 6046.2, led downwards by banking stocks which were affected by a decline in Portugal’s GDP and fears that a German bank may be broken up.

The Wood deal prompted gains of more than 3% for engineering firms Weir Group and Invensys, which were up 54p at 1749p and 10p at 351p respectively, and topped the Footsie risers board.

Meanwhile, Aberdeen-based Wood surged nearly 13% in the second-tier, up 74p at 646p, after announcing its deal with GE, which will see at least £1 billion of the proceeds go to shareholders.

The Footsie got off to a positive start following a strong session in Asia, as the resignation of Egypt’s president Hosni Mubarak eased worries over political instability in the Middle East.

But it lost its earlier gains as bankers were weighed down by growing speculation that German lender WestLB could be facing a break up as it prepares to meet a European Commission deadline for restructuring on Tuesday and by news that Portugal’s GDP declined by 0.3% in the final quarter of 2010.

Lloyds was among the biggest fallers, down nearly 2% – or 1p to 65.8p. Barclays was also down 1%, or 2.8p to 308.2p.

With little in the way of corporate results in the UK, the market is likely to look ahead to economic data released later this week, including inflation figures from the Office for National Statistics on Tuesday and the Bank of England’s quarterly inflation report on Wednesday.

Elsewhere, Rolls-Royce edged ahead 0.8p to 658p in the FTSE 100 after the engines giant unveiled a long-term services deal with airline Emirates worth 2.2 billion US dollars (£1.4 billion).