Falling bank shares pull down Footsie

The FTSE 100 Index closed down 79.6 points at 3933.9 as banks suffered a torrid start to the week.

Lloyds TSB fell more than 6%, Barclays 3% and HBOS nearly 4% as fears about bad debts in the sector continued to unnerve investors.

A hefty 43% drop - down 35.75p to 47.75p - by Cable & Wireless following a cut in its debt rating added to the gloom.

Two others threatened with demotion also slipped with Corus off 1.75p at 27.5p and Brambles down 1.5p at 140p.

But it was the heavyweight banks that provided the major drag as the sell-off in the sector recently gathered pace.

Barclays and Lloyds TSB hit sentiment last week by warning of higher bad debt provisions and lower profits in pessimistic trading updates.

Barclays lost 12.5p to 394p today while Lloyds TSB dropped 30.5p to 473p as stockbroker JP Morgan lowered its target price to 500p.

And Royal Bank of Scotland shed 66p to £14.65 despite saying it expected to report full-year figures in line with expectations. Investment bank Schroder Salomon Smith Barney hit spirits by cutting its price target on the group to £12.00.

Insurers were also hit by the poorer mood, with Royal & Sun Alliance down 4.75p at 128.25p and Prudential 24.5p lower at 466p.

Among smaller stocks, Amey slipped 1p to 29p after it warned that a string of one-off costs would dent final profits.

And Selfridges dropped almost 6%, 16p to 252.5p, after it revealed boss Vittorio Radice was joining M&S.

The Italian will head M&S' homewares division from next March in a major coup for the blue-chip retailer, which closed down 1.75p at 326.75p.