Britain's top share index ended flat on Wednesday as a persisting credit seizure offset news of solid demand for a $20 billion Federal Reserve auction aimed at easing the liquidity strain. Credit fears were exacerbated in late trade by credit rating agency Standard & Poor's action on six US bond insurers, with one insurer's rating being cut by 12 notches to "junk" territory from investment grade.
UK banks staged a mixed performance, with Alliance & Leicester adding 2.2 percent and HSBC up 0.6 percent, while Royal Bank of Scotland and Standard Chartered also rose. But others stayed on the defensive after Goldman Sachs downgraded four European banks, including Britain's Barclays which traded 2 percent lower.
Britain's FTSE 100 index ended up 0.08 percent, or 5.2 points, at 6,284.5 in choppy, thin trade in the run-up to the Christmas break. "Without a doubt the majority has now clearly and absolutely turned bearish," said Edward Menashy, an economist at Charles Stanley.
"Either we're going to have the mother and father of all recessions, far worse than anything that we've seen since the 1970s or, with respect, the market is wrong," he added. "The market is rarely wrong, that's why I feel apprehensive."
Banks initially leaped at the Fed's auction, which was held emitting $61.6 billion in bids, that has given comfort to the money markets," Menashy said of the Fed auction. "There is one tiny hope. And this is, the banks are inevitably short of cash at the end of the year," he said. "They're hoarding money and hopefully that position will begin to unwind as we pass the end of the year and then get back to normal conditions in the middle of January." Shares in volatile Northern Rock were up 4.4 percent to lead the FTSE gainers after hedge fund SRM Global said it had again edged up its stake in the stricken lender to 9.74 percent, up from 9.51 percent it announced on Tuesday.
UK Prime Minister Gordon Brown said the government was doing everything to help Northern Rock find the right buyer. The energy sector forged higher, with oil major Royal Dutch Shell up 2.2 percent and BG Group up 0.5 percent as US crude oil prices rose above $91 a barrel.
But heavyweight BP fell 0.4 percent after a rating downgrade from J.P. Morgan. Oil prices ended a four-day run of losses, after crude oil stocks in top consumer the United States fell more than expected last week to their lowest in nearly three years.
InterContinental Hotels was a standout loser on the FTSE 100, down 2.2 percent after Morgan Stanley reduced its rating to "equal weight" from "overweight" and lowered its price target to 980 pence from 1,100p. United Utilities was also among the worst performers, off 1.9 percent, as the stock traded without the rights of dividend this session.
On the UK economic front, investors clung to hopes of a rate cut early next year after minutes showed all nine members of the BoE's Monetary Policy Committee voted to cut interest rates by a quarter-point to 5.5 percent earlier this month and even discussed whether slowing growth meant a bigger reduction might be needed.
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