The FTSE 100 Index surrendered a positive start today after a broker downgrade for Lloyds Banking Group sparked a fresh slump in banking shares.
Lloyds was down 8% or 6.5p to 73.2p after Credit Suisse lowered Lloyds to underperform and Royal Bank of Scotland confirmed it was now 70% in the hands of the British government.
Anxiety among traders was already high after analysts at Morgan Stanley warned against calling an end to the bear market, meaning the FTSE 100 retreated 62.7 points to 3930.9 by mid-morning. It had opened in positive territory following a positive finish to trading in New York last night.
As well as the fall for Lloyds, RBS shed 6% or 1.9p to 27.9p and Barclays declined 9.8p to 162.8p. Legal & General was another big faller in the financial sector, down 2.9p to 48.1p, while Friends Provident slid 3.8p to 66.3p, or 5%.
The leading riser was BAE Systems after analysts said US defence secretary Robert Gates’ spending programme looked favourable for the company.
In particular the F-35 joint strike fighter programme, in which BAE has a key role, is in line for increased spending. BAE shares were 5% higher, up 16.75p at 345.25p, while defence and aerospace supplier Cobham rose 1.1p to 177.6p.
Outside of the top flight, PartyGaming shares surged 15% after it announced an agreement with US authorities protecting it from being prosecuted for providing internet gambling to customers in the US prior to new laws in October 2006. Shares jumped 30.5p to 249.5p as the deal removed a key obstacle to consolidation in the gaming sector. Rival 888 Holdings gained 9.5p to 99.25p.
Recruitment firm Michael Page International fell 3.75p to 212.5p after it reported a 32% drop in first quarter profits.