FTSE down by 60.2 points

Volatile trading put London’s leading share index back in the red today as the share rally seen yesterday proved short-lived.

The FTSE 100 Index closed 60.2 points into the red at 5545.6 amid rumours of further credit crunch pain in the banking sector.

Halifax Bank of Scotland, the UK’s biggest mortgage lender, was at the centre of speculation over its funding position and sunk more than 7% despite slamming the rumours as “malicious” and “lies”.

City watchdog the Financial Services Authority was forced to launch an inquiry into potential stock market abuse as it said traders were spreading false rumours and dealing off the back of them.

The speculation rattled already nervous investors and put paid to the 3.5% rebound seen ahead of yesterday’s US Federal Reserve interest rate decision, which trimmed three-quarters of a point off the cost of borrowing in America.

The Dow Jones was also down today in a tougher session after yesterday’s near-4% surge, despite better-than-expected first quarter profits from investment bank Morgan Stanley.

In London, HBOS closed down 34p at 446.25p as analyst warnings of its exposure to difficult conditions in wholesale money markets fuelled rumours of deeper problems. The company had been as much as 20% lower in early trading however before the lender moved to quash the speculation.

Banking stocks elsewhere however enjoyed better fortunes as Barclays rose 2%, or 10p, to 422.75p after a buy recommendation from Merrill Lynch.

Lloyds TSB was also in positive territory, up 10.75p to 427.25p.

Drugs giant AstraZeneca meanwhile advanced 53p to 1842p after a push from analysts at HSBC buoyed the stock.

Elsewhere however, annual results from fashion chain Next painted another dire picture of consumer prospects this year and propelled the firm to the top of the fallers board. Next was off 6%, or 71p, at 1108p.

The wider gloom over economic prospects for the US saw building supplies firm Wolseley lose ground. Shares in the group, which does most of its business across the Atlantic, were down 22.75p to 4483.25p. And housebuilder Taylor Wimpey, which also operates in the US, lost 3.4p to 152p.

Yellow Pages directory firm Yell Group was another big faller, down 2.5p to 143.9p. It continued a recent slide after heavy selling on fears for its US growth prospects and is set to be relegated from the Footsie next week.

Elsewhere, a warning from easyJet that it faced £45 million in extra costs in the second half over soaring fuel bills saw airlines take a hit. The low-cost carrier was down 10%, or 35.75p, to 339.25p. British Airways also fell 7.25p to 223p in the top flight.

The biggest Footsie risers were Experian Group up 21.5p at 381.75p, Carnival Group up 69p at 1929p, Standard Chartered up 52p at 1668p and AstraZeneca up 53p at 1842p.

The biggest Footsie fallers were HBOS down 34p at 446.25p, Lonmin off 223p at 3014p, Vedanta Resources down 129p at 2010p and Next down 71p at 1108p.