Northern Rock drags down FTSE

Shares in Northern Rock nose-dived again today as customers continued to withdraw funds amid mounting concerns over the future of the lender.

The banking group slumped more than 30% during morning trading, building on Friday’s 31% dive on the back of escalating fears sparked by the Bank of England’s bail-out agreement and subsequent profits warning.

The developments sent tremors through the financial and housing sectors, to leave the FTSE 100 Index down almost 2%, or 114.7 points to 6174.6.

Northern Rock suffered as hikes in the interbank lending rate hit profits at the group, which is heavily reliant on such funding due to its relatively small deposit rate.

Stock downgrades by Citigroup added to the heat on the banking sector, causing Alliance & Leicester to fall by 14%, or 123.5p to 749.5p and Halifax Bank of Scotland to decline 5%, or 41.5p to 818.5p.

Concerns over future profitability for banks also saw Lloyds TSB down 10p at 510p and HSBC off 8.5p at 879.5p.

The shockwaves also put housebuilders under pressure amid fears that the property market is heading for a slowdown. Barratt Developments slid 61.5p to 768p while Persimmon was off 58p at 958p.

Retailers took a hit, with Homebase owner Home Retail Group 19p lower at 380.5p and B&Q owner Kingfisher falling 8.1p to 188.5p amid implications for the home improvement market.

On a more positive note publishing group Reed Elsevier was one of only three Footsie risers, up 2p at 610p, after a broker upgrade from Citigroup said a recent fall in its share price represented a good buying opportunity.

In the FTSE 250 Index, Bradford & Bingley was down 37.5p at 191.25p and specialist mortgage lender Paragon fell for a second successive session, down 20.25p at 277.75p.

Property firm Minerva declined 11%, or 27.75p at 230.75p, as the sector again came under pressure.