FTSE down 1.6% amid fears of downgrade for French banks

French banking stocks drove another sell-off on world markets today amid renewed fears that Greece would default on its debts.

FTSE down 1.6% amid fears of downgrade for French banks

French banking stocks drove another sell-off on world markets today amid renewed fears that Greece would default on its debts.

Rumours of a credit rating downgrade for French banks intensified the sense of panic about the eurozone debt crisis. Shares in Societe Generale slumped 11%, even though it said its exposure to the eurozone's troubled economies was diminishing.

London's FTSE 100 Index closed down 1.6%, or 85 points, at 5129.6, although it had dropped more than 2% earlier in the day.

The pound dropped to 1.58 against the dollar, its lowest level since January, as the greenback was boosted after being seen as a safe haven amid the turmoil. Sterling was also down against the euro, at 1.16.

Meanwhile, in the US, the Dow Jones Industrial Average dropped 0.5% as the London market closed, amid fears that the eurozone debt crisis would help push the world's largest economy back into recession.

The DAX in Germany and the CAC 40 in France were down more than 2% and 4% respectively.

Fears that Greece will default on its debt were fuelled when the country's deputy prime minister said it could run out of money next month unless it meets the EU's bailout conditions.

This sparked a sell-off for banking stocks across much of Europe, although those in the UK were relatively resilient, despite the £7bn (€8.13bn) cost of the Independent Commission on Banking's proposals for a protective firewall for retail operations.

Lloyds Banking Group fell 0.5p to 30.6p despite being given a boost as the ICB stopped short of recommending the taxpayer-backed bank must sell more branches than the 632 it has been told to offload by EU regulators.

Barclays dropped 2.35p to 141.65p, although taxpayer-backed Royal Bank of Scotland fell 3%, 0.7p to 20.8p.

Traders' fears were heightened after a meeting of G7 leaders over the weekend failed to satisfy markets they could tackle the eurozone debt crisis or the slowdown in global economic growth.

Mining stocks bore the brunt of the selling as a result of concerns the eurozone crisis could hit global demand for metals.

Copper group Antofagasta and silver and gold producer Fresnillo also ran into heavy profit taking. Antofagasta dropped by 40p to 1249p and Fresnillo shed 7%, or 161p at to 1989p. Eurasian Natural Resources slumped 22.5p to 622.5p.

Company news took a back seat due to the frenetic eurozone speculation and banking reform activity.

Associated British Foods, the owner of the discount fashion chain Primark, slipped 18p to 1052p as it said the chain was having to discount more than expected as it battles the harsh consumer climate.

The budget retailer's like-for-like sales rose by 3% in the year to September 17 but it needed offers to get customers spending, which will hit operating margins by more than anticipated.

The biggest Footsie risers were Man Group up 10.9p at 227.1p, Arm Holdings ahead 9.5p at 590p, Inmarsat up 6.9p at 476.6p, and Standard Chartered ahead 9.5p at 1334p.

The biggest Footsie fallers were Fresnillo down 161p at 1989p, 3i off 9.1p at 188.4p, Aviva down 13.5p at 289.2p, and Resolution off 10.8p at 235.3p.

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