Modest gains for FTSE

London’s leading index rose for a third day running, but gains were modest as a downgrade of UK banks by a top ratings agency overshadowed a better than expected jobs report in the US.

The FTSE 100 initially rose by more than 70 points on news that US employers added 103,000 jobs in September. almost double forecasts, but it settled just 12 points higher at 5303.4 as Moody’s downgrade sapped confidence in the bank sector.

The review had been on the cards since May and reflects the agency’s view that the UK government is less likely to bail out the banks, rather than a reflection of their balance sheet strength.

Banks expressed their disappointment at the review, which left Lloyds Banking shares 1.2p lower at 34.7p. Barclays also fell 3.2p to 164.7p although it was not one of the banks downgraded.

Royal Bank of Scotland was also unsettled by reports it may need another round of funding to bolster its balance sheet. That would mean UK taxpayers, who own 83% already after a previous bailout in 2008, having to stump up again. RBS shares fell 0.7p to 23.6p even though the bank strongly rejected the funding claim.

On currency markets, the pound rallied strongly to 1.157 against the euro and to 1.561 versus the US dollar following a slide yesterday on the £75bn boost to the UK’s quantitative easing programme.

Elsewhere, Unilever and Kingsmill firm Associated British Foods suffered in the fall-out after Hovis owner Premier Foods issued a major profits warning.

Britain’s biggest food manufacturer, which has brands including Branston and Sharwood’s, said sales volumes were down 8% in the three months to September 30 as shoppers opted for more own-label products in the current downturn.

Premier’s shares crashed 42% or 4.2p to 5.8p in the FTSE 250 Index, while among top flight shares Unilever fell 30p to 2020p and AB Foods eased 8p to 1091p.

Retailers picked up even though employee-owned John Lewis and Waitrose reported contrasting fortunes last week as soaring temperatures played havoc with autumn sales trends.

In the week Waitrose began stocking Halloween and Christmas products, its revenues were up by 9.7% to £101.9m in the week to last Saturday, while the department store side of the John Lewis Partnership reported a 7.9% drop in sales as October’s mini-heatwave disrupted winter clothing sales.

Supermarket Wm Morrison rose by 2.5p to 300.7p and John Lewis’s FTSE 250 rival Debenhams rose by 4.3p to 62.8p.

Mothercare also ended a tough week on a better note as shares in the baby wear retailer added 9.4p to 189p following their collapse on Wednesday after a shock profit warning.

The biggest Footsie risers were Vedanta up 47p at 1160p, Wolseley ahead 67p at 1721p, ITV up 2.05p at 62.6p and Intercontinental Hotels ahead 33p at 1061p.

The biggest Footsie fallers were Lloyds Banking down 1.2p at 34.7p, Royal Bank of Scotland off 0.7p at 23.6p, Glencore down 10.2p at 422p and BSkyB off 14.5p at 675p.