Britain's top share index snapped a three-day winning run on Tuesday as banking stocks fell on persistent economic concerns and Vodafone and Enterprise Inns lost ground after trading updates. The commodity-heavy FTSE 100 ended down 40.2 points, or 0.7 percent at 5,364.1, after earlier falling to 5,282.8. The UK's benchmark index has fallen nearly 17 percent this year to date.
Vodafone topped the FTSE 100 decliners by slipping 13.6 percent to its lowest close since October 2006. The stock shaved 44 points off the index after Vodafone cut its revenue outlook as tougher economic conditions forced consumers to hold back from buying and using new handsets. The company, the world's largest mobile phone firm by revenue, said full-year revenue was expected to be around the bottom of its previously stated range.
"A disappointing trading statement from Vodafone, which although arguably offers a recession-proof service, does cast doubts upon the near-term prospects of the telecom sector," said Andrew Turnbull, director at Blue Index CFDs. Banking shares fell again after recovering in the previous session on initial reaction to results from Bank of America, as investors remained concerned about further writedowns and the sector's ability to raise more capital.
The sector extended losses after US bank Wachovia Corp posted an $8.86 billion second-quarter loss and slashed its dividend for a second time this year, hurt by a big goodwill charge and an increase in reserves for bad loans as mortgage defaults soar. Barclays, Lloyds TSB, HSBC and HBOS shed 0.1-2.9 percent.
Fitch said it expected further negative rating actions on global banks in the coming months, as the operating environment remained tough and the global economy continued to slow. Gerry Rawcliffe, managing director at Fitch's Financial Institutions Group, said in a report that banks in developed markets now faced the prospect of increased credit costs on top of higher funding costs.
"We had some reasonably reassuring comments from some of the US banks in recent days, but it's difficult to say that all of the difficulties in relation to the credit market are behind us," said Keith Bowman, analyst at Hargreaves Lansdown. "I am sure we are going to be results-driven in the next few days." Further on the downside, Enterprise Inns, Britain's second-biggest pubs group, plummeted 13.4 percent after it said its profit was under pressure from falling beer sales and the cost of helping struggling tenants.
Shares in Lonmin, the world's third biggest platinum producer, gained 5.2 percent to buck a downward mining trend, as traders cited talk of a 3,450 pence per share bid by rival Xstrata.
Lonmin was not immediately available for comment. Xstrata fell 3 percent. Oils shares gained, with BP, Royal Dutch Shell, Cairn Energy and Tullow Oil up between 0.8 and 6.2 percent. "After a couple of days' break, Tuesday has seen a return to the more pessimistic view of things but so far at least the market has held up reasonably well," said David Jones, chief market strategist at IG Index.