FTSE down despite banks boost

Sluggish economic data from the world’s biggest economy offset gains by buoyant banking stocks, sending the FTSE 100 Index into the red and continuing a turbulent performance by the top tier.

The FTSE 100 closed down 5.6 points at 6280.6 after a promising start – driven by hopes over the creation of a “bad bank” for toxic loans – was dashed by disappointing housing and company data from the United States.

It emerged MPs have asked the Treasury for a full-cost analysis of a bad bank, which was mooted by Bank of England Governor Sir Mervyn King earlier this year as a way of boosting lending to Britain’s businesses.

Banks were also lifted by the Government’s launch late on Friday of a legal challenge to a European financial transactions tax, which it fears could have a damaging impact on the City.

That lifted Lloyds Banking Group 1.6p to 49.1p, a 3.5% gain. Royal Bank of Scotland was 5.7p higher to 286.2p and Barclays was 3.15p ahead at 289.5p.

RBS’s improvement came amid speculation that the majority state-owned bank will soon issue billions of pounds of new capital in a bid to boost its capital cushion.

Sky News reported that RBS will ask shareholders for permission to issue Cocos - a form of debt which convert to equity – for the first time.

But disappointing earnings by industrial bellwether Caterpillar on Wall Street, plus a surprising fall in home sales in the US, sent the UK’s top tier into reverse.

Gains were also dampened in Europe, with the Dax in Frankfurt and the Cac 40 in Paris only making marginal headway.

Michael Hewson, senior market analyst at CMC Markets said the initial “relief rebound” could well be construed as “clutching at straws given that the economic outlook continues to remain difficult”.

However, the blue-chip index appeared to suffer little impact from Fitch stripping Britain of its AAA investment status late on Friday.

On the currency markets the pound made 0.2% gains on the dollar to 1.53, and was up 0.3% against the euro to 1.17.

Randgold Resources headed the blue-chip index after last week’s heavy sell-off among commodities firms, as it reported encouraging progress with a gold project in the Democratic Republic of Congo. Its shares were 206p higher at 4870p, a 4.4% gain.

ITV also climbed the leaderboard after revealing a deal worth at least £18 million to buy TV production firm The Garden, which is behind hit documentaries 24 Hours In A&E and Inside Claridge’s. Shares in the group were up 1.1p to 124.3p, a 0.8% gain.

But while a heavy colds and flu season boosted first quarter trading at Durex, Nurofen, Strepsils and Dettol owner Reckitt Benckiser, shares in the consumer goods giant closed down 63p at 4646p, a 1.3% fall.

Outside the top flight, shares in Betfair continued to rise despite the company’s rejection of a takeover proposal worth £910 million from private equity firm CVC Capital Partners.

The approach, which was rejected on valuation grounds, was worth 880p a share, compared with Betfair’s stock market flotation price in 2010 of 1300p. Shares surged 4.2% or 33.5p to 838.5p.

The biggest risers on the FTSE 100 were Randgold Resources, 206p higher at 4870p, Lloyds Banking Group up 1.6p to 49.1p, Royal Bank of Scotland was 5.7p higher to 286.2p and Tate & Lyle 15.5p higher to 853p.

The biggest fallers on the FTSE 100 were Evraz, down 6.7p to 155.1p, Amec off 34p to 965.5p, Melrose 8p lower to 236.6p and Petrofac 35p weaker at 1267p.