FTSE flounders in sea of red

The FTSE 100 Index was a sea of red today after falling more than 2% amid further signs of economic gloom.

Shares tumbled early on after a sharp overnight fall on Wall Street infected stocks in London, and remained depressed thanks to more housing market woes and fears in the financial sector.

By mid-morning the Footsie was 130.7 points lower at 5382, in bear market territory.

Speculation that two mortgage providers might have to raise fresh capital and make further writedowns triggered the sell off in the United States.

London’s banking stocks were sharply lower in the wake of the rout, with Royal Bank of Scotland leading the sector’s fallers. Shares in the bank, which was downgraded by Cazenove yesterday, fell another 8.8p to 192.2p. Lloyds TSB was 11.75p down at 284.75p.

Bradford & Bingley continued to cause concern, with shares down another 19%, or 7.25p to 34.75p, as one analyst suggested the stock was now effectively worthless.

Alliance & Leicester was down 8%, or 19.5p to 229p, after Panmure Gordon said it now expected the bank to report losses in both 2008 and 2009.

Government figures showing the average cost of a home at a 26-month low in May added to housing market gloom, with housebuilder Persimmon also unveiling a steep sales fall and 1,100 job cuts. Shares in the FTSE 250 firm were 4.25p off at 223.75p.

Fellow second tier property group Savills was also in the red after reporting a 45% drop in London residential property transactions. Shares dropped 6% or 12.25p to 203p.

Blue-chip building supplies group Wolseley was among the major fallers, down 18.5p to 292.5p, with B&Q owner Kingfisher 5.2p worse off at 93.1p.

Just four Footsie firms were showing gains, including under-pressure Marks & Spencer which clawed back some of the ground lost over the past days, adding 0.75p to 217.75p.