Uncertainty over the fallout from fraud charges against Goldman Sachs and the grounding of flights across Europe depressed London blue chips on Monday, led by risk-sensitive banks and miners and travel firms. The FTSE 100 closed down 16.05 points, or 0.3 percent, at 5,727.91, extending Friday's 1.4 percent fall. Banks were rattled as investors bet the fraud charges at the US banking giant would reinforce the need for Europe to act to toughen regulation.
HSBC and Barclays fell 1 percent and 0.8 percent respectively. Goldman Sachs may face legal action from German bank IKB and could be pursued by regulators in Germany and Britain after the US investment bank was accused of duping clients over its marketing of a subprime mortgage product.
"Multiple levels of fallout, both volcanic and otherwise, have contrived to hit market sentiment and push the equity market lower, although it's now off its lows after positive earnings from Citigroup and positive economic data out of the United States," said Michael Hewson, analyst at CMC Markets, First-quarter profits at Citigroup, which beat analyst forecasts, took some sting out of the falls.
State-backed Royal Bank of Scotland rose 4.4 percent as BofA Merrill Lynch hiked its target price and added the stock to its Europe 1 investment list. Peer Lloyds Banking Group rose 1.1 percent. Miners retreated as metal prices fell, with the Goldman allegations clouding the demand outlook and rocking sentiment. Kazakhmys, Vedanta Resources and Antofagasta and Fresnillo were the worst off, shedding 1.6 to 2 percent.
Travel firms peppered the FTSE 100's fallers list as a raft of companies issued projections on the financial impact of the ash cloud from an Icelandic volcano which closed most European airspace for a fifth day. Tour operators TUI Travel and Thomas Cook and low-cost airline easyJet put the daily costs of the restrictions at around 5-7 million pounds.
TUI Travel fell 1.2 percent with Charles Stanley downgrading its recommendation, fearing "customers may be discouraged from booking holidays in the short term". Peer Thomas Cook shed 1.6 percent, while British Airways dropped 1.4 percent and mid cap easyJet fell 1 percent.
On the upside, risk-averse stocks, which tend to outperform when the market is under pressure, were among the best gainers. Cigarette firm British American Tobacco put on 1 percent, while drugmaker AstraZeneca, helped by an upgrade to "neutral" from Exane BNP Paribas, added 0.4 percent. On the macro economic data front, a gauge of the US economy's prospects rose more strongly than expected to a record high in March, pointing to a steady economic recovery, partly offsetting some of the weaker market sentiment.