Britain's top share index ended 0.7 percent lower on Thursday in choppy trade as volatility reigned despite a concerted move by central banks to boost liquidity and Lloyds TSB's deal to buy HBOS. Investors were also edgy ahead of Friday's futures and options expires.
The FTSE 100 index closed 32.4 points lower at 4,880.0 with a jump back above the 5,000 barrier to a session peak of 5,015.9 proving short-lived as the bulls and the bears battled over the psychologically important level. The UK benchmark lost 2.3 percent in highly volatile trading on Wednesday, and is down nearly 8 percent on the week.
The turmoil in the markets prompted the Federal Reserve and other central banks to pump billions of dollars into the global money markets in a coordinated effort to ease a funding squeeze. Click on. The move initially allayed some of the fears on the health of the global financial system that has seen investors dump shares.
"Although the bounce off the lows is at least a step in the right direction, the impact still has to be seen as cautious at best," said David Evans, market analyst at BetOnMarkets.com. In London Lloyds TSB sealed a 12.2 billion pound ($21.7 billion) deal to buy HBOS, Britain's largest mortgage bank, to create a dominant mortgage and savings provider.
HBOS shares, which have taken a battering this week on funding worries, gained 17 percent on the takeover by Lloyds TSB, which fell 18 percent. Other banking stocks saw earlier advances erased. Royal Bank of Scotland shed 4.5 percent and Standard Chartered lost 1.9 percent.
Barclays dropped 5.3 percent after a placing of 226 million shares at 310 pence each raised 701 million pounds to give it additional resources to absorb the acquisition of Lehman Brother's North American investment banking operations, announced on Wednesday. But other financial stocks managed to hang on to gains, with London Stock Exchange adding 7.8 percent.
Traders cited increased volumes and talk that rival platform Turquoise may suffer as a result of its backing by embattled investment banks. Aviva was 4.9 percent higher after Keefe, Bruyette & Woods said it saw the firm as one of those benefiting most among UK insurers from the competitive weakening of AIG.
British Airways lost 11 percent as investors fretted over the twin threats of a fall in business class passengers caused by the financial crisis and a 1.5 billion pound pension deficit, analysts said. Insurer Old Mutual sank 15.5 percent after it said it had a $237 million exposure to AIG.
But news from the High Street was positive as back-to-school shopping trips gave UK retail sales an unexpected boost in August. Clothing retailer Next added 3.7 percent and Marks & Spencer gained 2.3 percent. Europe's largest home improvements retailer Kingfisher gained 9.7 percent as it beat first-half profit forecasts and said cost cuts would help it cope with very tough trading conditions.
"Whilst the sector as a whole is finding cheer off the back of the better than expected retail sales data we saw this morning, with oil having bounded back over $100/barrel in recent trade again there's no real suggestion that disposable incomes will start rising again in the near term," said David Fineberg, dealer at CMC Markets.
Pubs operator Enterprise Inns gained 5.4 percent after Goldman Sachs raised its rating to "neutral" from "sell" after recent share price weakness, keeping its 230 pence price target unchanged.