FTSE falls following early gains

London’s leading share index dipped into the red today after a day of heightened volatility following the Bank of England’s move to cut interest rates.

The FTSE 100 Index closed down 8.2 points at 6485.6, having at one stage reached near triple digit gains off the back of the 0.25% cut in the cost of borrowing, to 5.5%.

The Bank’s comments highlighted the ongoing inflationary pressures, which took some of the shine off the investor cheer.

Miners also caused the weakening as investors feared that the Bank’s comments about weaker growth in 2008 signalled a likely downturn in global demand. There was also an element of profit taking after a 3% rise for the Footsie yesterday.

Vedanta Resources was high up on the fallers board with a drop of 73p to 2271p, while Rio Tinto was 137p lower at 5583p and Xstrata down 70p at 3388p.

One of the strongest gains of the session came from Royal Bank of Scotland after it said write-downs for both RBS and recent acquisition ABN Amro would total £1.5 billion, £250 million of which it had been able to offset elsewhere.

The better-than-expected figure was accompanied by guidance that underlying trading will beat City hopes. Shares in the NatWest owner rose 3%, or 12.75p to 478.5p, while HSBC cheered 14p to 844p.

The prospect of a pick up in mortgage activity meant the UK’s biggest lender - Halifax Bank of Scotland – rose 13.5p to 813p, a gain of 2%. Barclays had also cheered in the early part of the session, but closed down 1p at 553p. Troubled mortgage bank Northern Rock, meanwhile, added 3p to 103p.

Housebuilders experienced a mixed performance, with most spending the early part of the day in positive territory on hopes of a rate cut, only to slip into the red for the close.

Charles Church owner Persimmon fell 45.5p to 750.5p, while Barratt Development was also down, off 19.5p at 448.25p and Taylor Wimpey closed down 3.95p at 199.3p, following a strong performance yesterday.

Second tier rival Bellway shed 13p to 887.5p after reporting reservations down 7% year-on-year as the credit crunch knocked homebuyer confidence.

Elsewhere, fashion retailer Alexon – owner of Bay Trading and Dash – added to the gloom among high street stores with news that full year profits were unlikely to match market expectations.

Shares in the group dived 10%, or 11p to 96.25p.

Meanwhile, software retailer Game Group rose for a second successive session after the Competition Commission provisionally cleared its acquisition of rival Gamestation. Shares, which lifted 16% yesterday, rose another 13.5p to 222.5p, or more than 6%.

The biggest Footsie risers were London Stock Exchange up 67p at 1870p, Friends Provident up 5.8p at 163.3p, Smith & Nephew up 20p at 589p and Northern Rock up 3p at 103p.

The biggest Footsie fallers were Persimmon down 45.5p at 750.5p, Kingfisher down 7.2p at 151.1, Barratt Development down 19.5p at 448.25p and Home Retail Group off 12.75p at 350.75.