Sell-off dominated by financial and mining stocks drives Footsie lower

FTSE: 5,066.81 (–61.67) Mid-250: 9,719.09 (–100.29) Small Cap: 2,764.30 (–41): BRITAIN'S TOP share index began the final quarter of 2011 on a downbeat note yesterday, as investors trimmed positions in banks and miners on familiar concerns over Greece's debt problems and worries about growth in Asia.

A 2012 draft budget approved by Greece’s cabinet on Sunday predicted a deficit of 8.5 per cent of gross domestic product for 2011, missing its 7.6 per cent target, even with more austerity measures.

“This suggests that Europe’s debt problems have come to a head and that the potential for a Greek managed bankruptcy and major bondholder haircut in the 50 per cent range appears increasingly likely,” said Colin Cieszynski, market analyst at CMC Markets.

Twitchy equity investors, keen not to get caught out on the wrong side of a sell-off, trimmed positions in banking shares as concerns grew that the euro zone debt problems could lead to a fresh banking crisis.

Banks led the blue chip fallers, with Royal Bank of Scotland down 4.4 per cent, while the cost of insuring European government debt and European bank’s debt increased to close to record levels.

“This is a clear sign that the markets know and understand how interlinked the banking system is – no bank is insulated from this crisis as a chain is only as strong as its weakest link,” Louise Cooper, markets analyst at BGC Partners, said.

The FTSE 100 closed down 61.67 points, or 1 per cent , continuing the volatile trend seen in the previous quarter.

The risk-off trade was not confined to banks as miners fell too in tandem with metal prices. Copper touched its lowest level since July 2010.

Vedanta Resources fell 8.3 per cent, while Morgan Stanley cut its forecasts for the mining sector on the diminishing prospect of global growth being robust enough to deliver stronger base metals prices next year.

Luxury goods firm Burberry shed 7 per cent, extending its slide in the past four sessions to 18 per cent, as investors fretted about the firm’s exposure to China.

International Power and utility Scottish and Southern Energy featured among the few risers, gaining 1.4 and 1.3 per cent respectively.

Elsewhere on the upside, bullish broker comment helped lift Randgold Resources 3.7 per cent, Sainsbury 2.3 per cent and Vodafone 1.4 per cent. – (Reuters)