The London market clawed back its earlier losses today after better than expected data from the US calmed fears caused by disappointing German growth.
The FTSE 100 Index had dropped as much as 85 points, or 1.5%, in early trading after figures showed the German economy grew by just 0.1% in the second quarter of 2011 – far below expectations of 0.5%.
But the blue chip index staged a recovery to close up 7.1 points at 5357.6 after traders’ nerves were soothed by encouraging US economic figures.
US production jumped 0.9% in July, which was above expectations of 0.5% and up from June’s 0.2%, after it was boosted by a stronger car sector.
There was more good news for the world’s biggest economy after ratings agency Fitch reaffirmed its triple “A” rating, just days after a downgrade from Standard & Poor’s sparked a bloodbath on world markets.
But despite the US data, fears remained about strength of the global recovery.
The slowdown in Germany was revealed a day after figures showed the French economy ground to a halt in the quarter and added to eurozone debt fears.
Michael Hewson, analyst at CMC Markets, said: “If peripheral countries like Spain and Italy were hoping that Germany was going to help save them from their debt nightmare with powerful growth, this morning’s GDP numbers put paid to that illusion.”
The pound was up against the euro, at 1.14, after the single currency was deflated by the news about its biggest economy. Sterling was also up at 1.64 against the dollar.
The latest downbeat news from the eurozone put further pressure on banking and mining stocks, still unsettled by last week’s sovereign debt fears and speculation over France’s leading banks. But many shares in these sectors recovered much of their losses in late trading.
Miner Vedanta Resources was among the biggest losers, down 3%, or 42p 1383p, while copper miner Antofagasta was off 36p at 1228p.
Barclays fell nearly 1%, or 1.8p to 181.6p, while Royal Bank of Scotland eased 0.5p to 25.7p.
Water stocks also featured on the fallers board after broker Goldman Sachs downgraded the sector following a strong run for shares. They included Severn Trent, which dropped 33p to 1461p, while United Utilities fell 6.5p to 592.5p. South West Water owner Pennon also fell 13p to 655p, despite saying that its waste disposal division Viridor continued to perform well.
It needs a strong showing after its pledge to increase its dividend payment to shareholders by 4% a year between 2010/11 and at least 2014/15.
Outside the top flight, shares in social housing repairs and maintenance service provider Mears jumped 6%, or 16.5p to 276.8p, after it posted a 7% rise in pre-tax profits for the half year to June 30. Its prospects have been boosted by the collapse of rival firms Connaught and Rok.
The biggest Footsie risers were Randgold Resources up 255p at 6435p, Fresnillo ahead 65p at 1861p, Icap up 14p at 444.5p, Standard Life ahead 6.2p at 212.4p.
The biggest Footsie fallers were British Land down 20p at 544p, Hargreaves Lansdown off 14.1p at 458p, Vedanta Resources down 42p at 1383p, Antofagasta off 36p at 1228p.