Britain's leading share index fell 1.7 percent on Tuesday hit by fears banks may need more capital and weak commodity issues amid intensifying concerns over the impact of a swine flu outbreak. At the close the FTSE 100 was 70.61 points lower at 4,096.40, but was above the session low of 4,058.73. The index ended 0.3 percent higher on Monday.
"Pressures have been on the downside for equity markets during the session ... However it hasn't been all negative with some solid economic data out of the US propelling Wall Street higher in early trade and helping London regain some of the losses," said Jimmy Yates, head of equities at CMC Markets. In the US stocks were modestly higher by London's close as solid housing and consumer confidence data offset concerns banks may need to raise more money.
Citigroup is talking to the US government about its capital levels after receiving early results of its stress test, but if it needs more capital it does not expect to get it from the government, people familiar with the matter told Reuters. Banks were a big drag on the FTSE 100 index in reaction to the reports, with Lloyds Banking Group, Royal Bank of Scotland, Barclays, HSBC and Standard Chartered down between 0.9 and 4.9 percent.
Miners took the most points off the blue chip index, falling back in line with softer base metal prices as demand concerns were exacerbated by the flu outbreak uncertainties. Rio Tinto, Xstrata, Anglo American, and BHP Billiton shed 2.2 to 6.3 percent. Oil producers also were easier, tracking a weaker oil price, with Royal Dutch Shell, BG Group, Cairn Energy and Tullow Oil down 0.8 to 1.9 percent.
But BP managed to buck the trend, adding 0.1 percent after its first-quarter results beat analysts' forecasts. "The month-end (on Thursday) could act as a trigger for further profit-taking and there's the old adage to sell in May and go away so in addition to the pig flu, it seems as if the remaining bulls might risk catching a cold too," Yates said.
Airlines and tour operators extended the previous session's losses as the death toll from swine flu in Mexico rose to 149 and the World Health Organisation raised its pandemic alert level over the deadly virus. British Airways, Carnival, Thomas Cook and TUI Travel shed between 1.7 and 5.4 percent.
"With the World Health Organisation raising the alert level and the extra cases being found, the market is being forced to take it (the swine flu outbreak) more seriously than yesterday," said David Jones, chief market strategist at IG Markets.
However, flu drug firm GlaxoSmithKline ran into profit-taking after early strong gains, shedding 1.4 percent, and other pharmas fell, AstraZeneca losing 2.1 percent. (For more on the flu virus, double click on). Among other individual movers, Centrica was a big blue chip faller, down 5.9 percent after Morgan Stanley cut its rating for the gas distributor to "underweight" from "equal-weight".
Standard Life shed 5.6 percent ahead of first-quarter trading news from the life insurer due on Wednesday after an update from peer Friends Provident disappointed. Friends Provident lost 4.8 percent after reporting a 40 percent drop in its first-quarter sales. But motor insurer Admiral Group gained 0.5 percent after issuing an in-line trading update.
Defensive issues provided the main blue chip gainers led by tobacco issues, with Imperial Tobacco and British American Tobacco up 1.8 and 0.8 percent respectively. Meanwhile, The Confederation of British Industry's distributive trades survey balance rose to +3 in April from -44 in March. That was the first positive reading since March 2008 and the highest since January 2008.
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