Greece debt woes sting banks as FTSE retreats

Mon Oct 3, 2011 11:54am EDT

 * FTSE down 1.0 percent
 * Banks fall as Greece sees deficit miss
 * Miners wane on Asia PMI woes
 By David Brett	
 LONDON, Oct 3 (Reuters) - Britain's top share index began
the final quarter of 2011 on a downbeat note as investors
trimmed positions in banks and miners on familiar concerns over
Greece's debt problems and worries about growth in Asia.	
 A 2012 draft budget approved by Greece's cabinet on Sunday
predicted a deficit of 8.5 percent of gross domestic product for
2011, missing its 7.6 percent target, even with more austerity
measures.	
 "This suggests that Europe's debt problems have come to a
head and that the potential for a Greek managed bankruptcy and
major bondholder haircut in the 50 percent range appears
increasingly likely," said Colin Cieszynski, market analyst at
CMC Markets.	
 Twitchy equity investors, keen not to get caught out on the
wrong side of a sell-off, trimmed positions in banking shares as
concerns grew that the euro zone debt problems could lead to a
fresh banking crisis.	
 Highlighting the impact the debt crisis is having on the
banking sector, Moody's said it was reviewing the rating of
Franco-Belgian bank Dexia on concerns about its
liquidity position.	
 	
 Banks led the blue chip fallers, with Royal
Bank of Scotland down 4.4 percent, while the cost of
insuring European government debt and European bank's debt
increased to close to record levels. 	
 "This is a clear sign that the markets know and understand
how interlinked the banking system is - no bank is insulated
from this crisis as a chain is only as strong as its weakest
link," Louise Cooper, markets analyst at BGC Partners, said.	
 On Monday, euro zone finance ministers will discuss ways to
leverage their EFSF bailout fund although traders said they
would not be holding their breath for a swift resolution.
 	
 The FTSE 100 closed down 52.98 points, or 1 percent
at 5,075.50, continuing the volatile trend seen in the previous
quarter, when the index sank 14 percent on dual concerns over
the euro zone debt crisis and the United States lapsing into
another recession.	
 	
 MINERS WANE	
 The risk-off trade was not confined to banks as miners fell
too in tandem with metal prices.	
 Copper touched its lowest level since July 2010 as
September factory activity in some of Asia's biggest economies
slumped to levels last seen during the depths of the financial
crisis as export demand dropped. 	
 Even in China, which reported a slight uptick in its
official PMI on Saturday, economists saw evidence of a
cooling-down as the increase in factory activity was smaller
than average.	
 Miner Vedanta Resources fell 8.3 percent, while
Morgan Stanley cut its forecasts for the mining sector on the
diminishing prospect of global growth being robust enough to
deliver stronger base metals prices next year.	
 Luxury goods company Burberry shed 7 percent,
extending its slide in the past four sessions to 18 percent, as
investors continued to fret about the firm's exposure to China.	
 "The global economic slowdown has become increasingly
apparent after the conspicuous lack of a Q3 bounce-back after
the disappointing second quarter," said Lothar Mentel, chief
investment officer at Octopus Investments, which manages nearly
$4 billion.	
 He said Octopus has looked for more exposure in
defensively-positioned equity funds, raising cash levels and
taking advantage of shorter-term trading opportunities due to
market volatility.	
 Perceived defensive stocks such as power provider
International Power and utility Scottish and Southern
Energy featured among the few risers, gaining 1.4 and
1.3 percent respectively.	
 Elsewhere on the upside, bullish broker comment helped lift
Randgold Resources 3.7 percent, Sainsbury 2.3
percent and Vodafone 1.4 percent.	
 Surprisingly upbeat PMI data from the United States and the
UK also helped London's blue chip index bounce off a session low
of 4,983.28.  	
 	
	
 
 	
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