June 29, 2010 / 10:04 AM / 9 years ago

European debt fears push FTSE below 5,000

LONDON (Reuters) - Britain’s top share index fell below the 5,000 points level on Tuesday as renewed anxiety about Europe’s debt problems sent riskier assets like banks and commodity stocks sharply lower.

By 0824 GMT, the FTSE 100 .FTSE was down 103.22 points or 2.1 percent, to a five-week low at 4,968.46, having gained 0.5 percent on Monday.

Jitters mounted ahead of bank repayments to the European Central Bank this week. Banks must repay 442 billion euros ($546 billion) to the European Central Bank on Thursday, leaving a potential liquidity shortfall in the financial system of over 100 billion.

“The problem we have at the moment is that governments and central banks are pondering whether to reduce the stimulus packages,” said Andrew Bell, chief executive at Witan Investment Trust.

“It is a bit like if you are a sick patient and somebody is threatening to reduce your drug dose, you are worried about whether you are better yet, and that is what the markets are going through.”

Investors were also worried that government moves to try and solve the debt problems by cutting government spending could derail a fragile recovery.

This prompted investors to sell commodities as the perception grows that demand for raw materials like base metals was likely to shrink, denting heavyweight miners.

Lonmin LMI.L and Kazakhmys (KAZ.L) were the biggest fallers down 4.2 percent and 4 percent respectively, with Kazakhmys failing to benefit from an upgrade by UBS.

The British blue-chip index is down 12.2 percent so far this quarter, its worst such fall since the fourth quarter of 2008 when it fell 12.9 percent in the wake of the collapse of Lehman Brothers.

Technical analysts said the index was close to breaching support levels that could see a much bigger retreat.

“Note that 4,927 is 38 percent Fibonacci retracement support from March 2009 low to 2010 high, so a weekly close below here should really tip the balance and send the index plunging,” said Nicole Elliott, technical analyst at Mizuho Corporate Bank.

ENERGY DRAIN

Energy stocks were also a big drag on the index as crude prices fell back toward $76 per barrel.

Troubled oil major BP (BP.L) fell 2.6 percent, with Tropical Storm Alex set to strengthen into a hurricane on Tuesday, delaying the company’s efforts to increase siphoning capacity at the gushing oil well in the Gulf of Mexico.

Banks were also sharply lower as concerns about their debt exposure returned. Barclays (BARC.L) was a standout loser down 2.6 percent, while sector heavyweight HSBC (HSBA.L) fell 2.1 percent.

Plumbing supplies company Wolseley WOS.L which is heavily exposed to the housing markets in the United States was also among the top fallers, down 3.4 percent.

Vodafone (VOD.L) fell 2 percent as Credit Suisse cut its rating to “neutral” from “underperform” with an unchanged 160 pence price target, citing recent outperformance by the mobile telecoms group’s stock.

Editing by Dan Lalor

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