* FTSE down 1.5 percent
* Bank retreat as Europe bond yields rise
* Retailers hit by Mothercare, French Connection updates
* Rexam rises on in line update
By David Brett
LONDON, Nov 17 Britain's top share index
was sharply lower on Thursday, with banks heavy fallers as
worries over the euro zone debt crisis intensified and retailers
were hit by more disappointing updates from the high street.
UK banks fell after an auction in which Spain
paid the highest rate to sell its 10-year debt since 1997, as
the country is swept deeper into the euro zone's debt crisis
ahead of a Parliamentary election on Sunday.
French bond yields also rose after its own bond auction,
while Italian bond yields remained dangerously high as investors
feared Europe's debt crisis could spell the end of the euro.
"If the gathering collapse in European bond markets is not
arrested, then the economic damage will be greater than equities
are discounting," said Andrew Bell, chief executive of the 1.1
billion pound Witan Investment Trust.
Earlier in the session, ratings agency Fitch cast a shadow
over the banking sector after it voiced concern over U.S. banks'
"Unless the euro zone debt crisis is resolved in a timely
and orderly manner, the broad outlook for U.S. banks will
darken. The risks of a negative shock are rising," Fitch said.
London's blue-chip index was down 83.79 points, or
1.5 percent, at 5,425.23 at 1138 GMT.
The FTSE volatility index rose 8 percent and is up
around 12 percent in November as Europe's politicians have
failed to contain the debt crisis.
Adding more pressure to the UK's benchmark index, Wall
Street futures pointed to a weaker open for U.S. equities.
Miners and integrated oils fell as
the demand outlook remained opaque at best and as investors
ditched riskier equities, with traders saying technically there
was scope for further downside.
"The UK FTSE 350 Mining sector index is testing below its
own 200-week moving average line by around 1 percent," said
Darren Sinden, a trader at Silverwind Securities.
"A move back to the mid-October lows around 18,700 is
possible through here, a correction of some 8 percent from the
current levels of 20,360."
European debt worries and austerity packages being
implemented by governments around the world continue to weigh on
consumers and feed through to retailers' bottom lines.
FTSE 250 mother and baby products retailer
Mothercare fell 2.5 percent as the firm reported
first-half pretax losses.
Small-cap fashion retailer French Connection
shed 20 percent after issuing a profit warning.
That followed Game Group's profit warning on
Wednesday, as the video game retailer became the first to voice
concerns over trading in the build-up to the vital Christmas
Blue-chip retailers such as Marks & Spencer,
Kingfisher and Next fell up to 1.7 percent.
Mixed retail data failed to lift sentiment in the
Tough trading conditions in Europe saw brewer SABMiller's
earnings fall short of expectations, pulling its shares
down 1.7 percent.
On the upside, Europe's largest drinks can maker Rexam
rose 2.4 percent following its update, with Oriel
Securities maintaining its "add" rating on valuation grounds.
Oriel says in rating terms Rexam on 9 times is at a near 20
percent price to earnings discount to its key peers Ball
National Grid, Britain's biggest energy distributor,
added 1.1 percent after reporting a rise in first-half pretax
profit and saying it was on track to deliver strong full-year
Commodities group Glencore International climbed 1
percent after saying third-quarter trading in its marketing arm
was "solid", as it posted a jump in metals output and announced
its first oil production, ahead of schedule.