Banking stock downturn hits FTSE

London's blue chips were on the back foot today as nerves over banking stocks showed little sign of abating.

Alliance & Leicester was the FTSE 100 Index's leading faller - down 6% - in another poor day for the sector.

The Footsie slid below 6300 to its lowest close for nearly two months today, finishing 68.4 points lower at 6291.2.

The London market had begun the session in nervous fashion after the Dow Jones Industrial Average lost more than 100 points overnight. Another slow start in the US came after the Federal Reserve said manufacturing output declined 0.5% in October.

In London, A&L's shares continued to suffer from speculation that it faced funding difficulties, even though the bank has repeatedly said it is not struggling to raise cash.

Shares were off 41p at 607p, as investors continued the sell-off that has hit the stock over the past month.

Today's concerns reflected the fact that the rate at which banks lend to each other for three months reached nearly 6.4% today - its highest level since September 19.

Royal Bank of Scotland was off 22p at 426.25p as yesterday's trading statement from Barclays - off 21.5p at 509p - put pressure on the Edinburgh-based bank to follow suit and reveal the extent of its exposure to the US sub-prime credit crisis.

Northern Rock shares were steady - 2p lower at 132.7p - on the deadline for interested parties to lodge takeover proposals with the company.

Friends Provident was another financial stock in the doldrums as investors worried about the company's prospects following its failure to complete a merger with closed life fund manager Resolution. Shares were down more than 4%, or 7.1p at 156.5p.

Property shares were also under pressure after Lehman Brothers cut its target price for British Land following the company's half-year results yesterday. Amid concerns about a hard-landing for the sector, British Land fell 22.5p to 889.5p, Land Securities eased 31p to 1469p and Hammerson dipped 25p to 974p.

The leading Footsie riser was mining firm Vedanta Resources, which gained almost 4%, or 77p, to 2060p as investors digested yesterday's strong figures and positive second-half outlook.

Traders also eyed value in Sainsbury's following heavy falls for the stock in recent days. The retailer gained 2%, or 8.25p to 413.5p.

This helped Morrisons and Tesco - up 3.25p at 283.5p and 3p at 484.5p respectively - as confidence remained strong in the supermarket sector ahead of the key Christmas trading season. Argos owner Home Retail Group also made early gains but closed 1p lower at 375.5p.

The biggest Footsie risers were Vedanta Resources up 77p at 2060p, 3i ahead 25p at 1044p, Scottish & Southern Energy up 35p at 1625p and Sainsbury's ahead 8.25p at 413.5p.

The biggest Footsie fallers were Alliance & Leicester down 41p at 607p, Kingfisher off 9.5p at 173.5p, Royal Bank of Scotland down 22p at 426.5p and Compass off 13.75p at 287.5p.