Housing woes deflate FTSE

A rare dose of good news from the high street failed to cheer investors today as more housing market woes dragged the London market into the red.

Britain’s biggest mortgage lender Halifax Bank of Scotland revealed £1 billion in writedowns and predicted a 9% fall in house prices, causing misery for rival lenders and housebuilders.

Gains for miners on higher metal prices helped limit the damage to the FTSE 100 Index, but it ended 48.5 points lower at 5708.4.

The close is the lowest since the end of March, as a poor start on Wall Street added to the downward momentum for London’s top flight shares.

HBOS’s trading update – which came as the firm looks to gain investor backing for its £4 billion rights issue – rattled already frayed nerves in the banking sector, with news of higher bad debts to come on a worsening outlook for house prices.

The banking giant topped the Footsie’s fallers board, dropping 7%, or 22p to 296.75p, despite reassurances that trading was satisfactory and in line with its expectations. Alliance & Leicester joined the sector slide, down 18.5p at 304.25p, with Barclays off 10.5p at 315.75p.

Embattled housebuilder Persimmon also suffered yet more falls after HBOS’s grim predictions for 2008 property prices, which marked a near-doubling of recent forecasts from the previous “mid-single digit” declines.

The Charles Church owner fell 14.5p to 365p, ahead of its imminent ejection from the Footsie in a top flight reshuffle tomorrow.

Some of the UK’s high street firms were in better shape after official retail sales data showed a 3.5% rise in volumes last month – the biggest monthly rise since records began in January 1986.

The figures shocked analysts who expected a 0.1% drop, and raised fears that an interest rate hike could be in the pipeline to dampen down inflation.

Supermarket giant Tesco rose 3.2p to 384.5p, along with fashion chain Next, up 14.5p to 1012p.

Elsewhere, British Gas owner Centrica provided some support to the Footsie, more than 2% ahead, or 6.25p, at 312p after a brief update, which confirmed performance was in line with last month’s trading news.

But other energy stocks were on the back foot as oil prices retreated a few dollars after energy-hungry China warned it was upping fuel prices. Cairn Energy was 4p down at 3218p and oil giant BP 9.5p off at 570.25p.

Transport groups were on the front foot after Go-Ahead in the second tier said full-year results were set to be ahead of its previous expectations.

The stock soared 12%, up 184p to 1707p, with sector counterpart Stagecoach also up 18.75p at 256.75p. In the top flight, FirstGroup rose 10.2p to 522p.

The Footsie’s four biggest risers were Anglo American, up 119p at 3518p, Eurasian Natural Resources up 49p at 1514p, ICAP up 16.5p at 575.5p, and FirstGroup which ended the day 10.2p ahead at 522p

The four biggest fallers were HBOS, down 22p at 296.75p, Alliance & Leicester down 18.5p at 304.25p, Thomson Reuters down 72p at 1445p, and Persimmon which closed 14.5p down at 365p.

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