Virgin's Northern Rock moves fail to lift FTSE

The FTSE 100 Index lost more than 1% today despite the emergence of a potential saviour for troubled mortgage lender Northern Rock.

The crisis-hit group finished the session more than 28% higher after a Virgin-led team was named as preferred bidder to revive the business.

But the Footsie failed to cling onto early gains as wider uncertainties over banking and property stocks dragged the benchmark index 81.6 points lower to 6180.5 at the close – below its starting point for the year.

US markets also slipped back into the red after a brief rally following the Thanksgiving break, further undermining sentiment in London.

But Northern Rock was the Footsie’s leading riser, advancing 24.2p to 110.1p as shareholders welcomed the chance to stay on board to benefit from any recovery despite the likelihood of a cut-price offer for investors.

But among other banking stocks, there was more nervousness over credit crunch fears as HSBC took more than £20 billion onto its balance sheet after bailing out two investment vehicles.

HSBC was down nearly 2%, or 15.5p at 811.5p, while other financial shares in the red after early gains included Barclays, off 13.5p at 497p and Royal Bank of Scotland 8p weaker at 413p as interbank lending rates edged higher.

Mortgage lender Alliance & Leicester meanwhile was down 31p at 614.5p, or nearly 5%, after weekend reports of possible sub-prime mortgage writedowns.

Apart from Northern Rock, mining stocks made the early running to lift the benchmark index, although their advance tailed off as the session progressed.

Rio Tinto touted its growth prospects today and revealed plans for a dividend hike as it seeks to ward off interest from BHP Billiton. But Rio finished the day 83p lower at 5232p, while suitor BHP was 27p down at 1541p.

Elsewhere in the sector there was patchier progress with Xstrata gaining 45p to 3063p and Vedanta Resources ahead 20p at 2056p.

Energy stocks were also in focus with oil prices close to 100 dollars a barrel, with British Energy up 13p to 501p and Tullow Oil ahead 12.5p to 588p. But elsewhere BP fell 4p to 573.5p, and Royal Dutch Shell slipped 28p to 1953p.

Another faller was pubs chain Mitchells & Butlers after Punch Taverns dismissed speculation of talks over a possible bid for the All Bar One owner. Shares in M&B were off 32.5p at 608.5p, a fall of 5%.

Property also endured a poor session amid concerns over a slowing market, with Hammerson off 49p at 950.5p and British Land down 42.5p at 860p.

In the second tier, waste management company Biffa was off 33.5p at 291.5p – a fall of more than 10% – after it confirmed it had rejected a private equity led takeover approach.

Kelda meanwhile rose 32p to 1088p after recommending a £3 billion bid from infrastructure consortium Saltaire Water.

The biggest Footsie risers were Northern Rock up 24.2p at 110p, British Energy ahead 13p at 501p, Tullow Oil up 12.5p at 588p and Rentokil Initial ahead 2.5p at 149.4p.

The biggest fallers were Barratt Developments down 27.5p at 456.75p, Mitchells & Butlers off 32.5p at 608.5p, Hammerson down 49p at 950.5p and Liberty International off 53p at 1046p.