Britain's FTSE falls as Cyprus tax plan rocks banks

LONDON, March 18 Mon Mar 18, 2013 4:09am EDT

LONDON, March 18 (Reuters) - Britain's FTSE 100 tumbled lower early on Monday after Cyprus planned to impose a shock tax on their investors to prevent a collapse of the financial system, heightening fears of contagion in the euro zone with exposed banks the heaviest fallers.

By 0803 GMT, the FTSE 100 was down 93.03 points, or 1.4 percent, at 6,396.62.

In a radical departure from previous aid packages, euro zone finance ministers want Cyprus savers to forfeit a portion of deposits in return for a 10 billion euro ($13 billion) bailout.

Bank, large holders of deposits within the euro zone, fell 1.7 percent on concerns over their exposure to any turmoil and knock-on effect within.

"Banks clearly will be hit by this news, which will provide an opportunity for investors looking to build a position," Guy Foster, portfolio strategist at Brewin Dolphin, said.

He said the specifics of Cyprus's situation, in terms of the outsized nature of its deposits and the make-up of some of the larger depositors, is not repeated across the euro zone, so confidence in bank deposits on other peripheral European regions, therefore, ought to hold firm.

"In general, however, we remain cautious on the medium term story for Europe. We expect economic data and political infighting to weigh on European markets all summer," Foster said. (Reporting by David Brett)