FTSE down on bank moves and interest rate hopes

The London market was weighed down by weaker banks today after the sector made its latest cash call and expectations for lower interest rates were dashed.

Bradford & Bingley fell nearly 10% after performing a u-turn and unveiling a £300 million rights issue, while Halifax Bank of Scotland and Alliance & Leicester were 5% and 4% lower respectively.

The losses saw the FTSE 100 Index dip into the red by mid-session, losing 2 points to 6209.9. Buoyant mining stocks amid continued bid rumours within the sector prevented the index from falling further.

Banks dominated the fallers’ board, with gloomy comments about the inflation outlook from the Bank of England affecting sentiment. The Bank’s latest quarterly inflation report suggests the CPI rate will remain well above its 2% target in two years’ time if interest rates fall up to twice more this year to 4.5% as markets expect.

Alliance & Leicester lost 18.25p to 440.5p after analysts downgraded the stock in the wake of a trading update yesterday. HBOS slipped 23p to 462p and Royal Bank of Scotland was off 8.25p at 329.5p. B&B, which said last month it did not plan a rights issue, slumped 15.25p to 143.5p.

Strong annual results from Sainsbury’s provided investors with the cue to take recent profits, causing shares to fall 10.5p to 379.25p, a drop of almost 3%.

The banks were kept off the top of the fallers’ board by FirstGroup after the transport firm said it would place new shares in order to refinance debt taken on following its purchase of Greyhound bus firm Laidlaw last year. Shares dived 44.5p to 554.5p, despite announcing a strong rise in operating profits.

Among the miners in better shape was BHP Billiton, up 63p to 2083p, amid market talk that Chinese group Chinalco was considering raising its stake in the giant.

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