Weak banks drive FTSE to three-month low

Britain's top shares ended lower on Wednesday, weighed down by banks on worries over the UK government's drive for tougher regulation and Europe's debt crisis, while commodity stocks also pressured the index. The FTSE 100 closed down 60.58 points, or 1.0 percent, at 5,742.55, its lowest finish since March 18.
Banks fell ahead of a speech by British finance minister George Osborne on Wednesday, when he is expected to endorse ring-fencing of their retail businesses from riskier investment banking - a move that would put costs up in the short term. Barclays and Royal Bank of Scotland were the worst off, down 2.7 percent and 1.9 percent respectively.
Analysts, however, argued this development would make the sector more resilient and, therefore, attractive to investors. "If you're a slightly longer-term player, from an investment point of view, that makes banks a slightly safer bet," Michael Hewson, market analysts at CMC Markets, said.
"Obviously there will be a certain amount of shareholder protection built in, if the retail part of the bank is protected from any sort of collapse of the bank."
Anxiety over the debt crisis in Greece also heaped pressure on the sector. Euro zone finance ministers failed to agree over aid to the country, and rating agency Moody's said it may cut the credit ratings of French banks, citing exposure to Greek debt.
Against this backdrop, UBS, in a note, suggested looking for companies with strong earnings momentum and low macro sensitivity. The broker highlighted the following UK companies: ITV, Kingfisher, Marks & Spencer, J Sainsbury, Tesco, Legal & General, Old Mutual and Carillion.
UBS said it does not like high-quality companies because, while they would benefit from a deepening of the sovereign debt crisis, they are already expensive.
The mood was further soured by a negative reading on New York State manufacturing, and a higher-than-expected US inflation report.
Commodity stocks fell in tandem with metals and crude prices, with Glencore leading the market lower, off 5.4 percent at 506.7 pence, against its 530 pence initial offer price.
Glencore will be barred from bidding for embattled miner ENRC for six months under UK take-over rules, after the commodities trader said it was not actively considering a bid.
Negative newsflow on the high street weighed on retailers. Marks and Spencer and Next fell 1.7 percent and 0.4 percent respectively after Swedish clothes retailer Hennes & Mauritz missed sales forecasts, while J Sainsbury shed 1 percent as it warned of tough times ahead.
Some analysts, however, pointed to relatively healthy growth in UK private sector employment as a positive sign for retailers.
Elsewhere, British Land advanced 0.4 percent on news the firm's and Blackstone Group's plan to build UBS' new European headquarters in central London will go ahead, after a bid to preserve the location as a heritage site failed. 3i Group fell after going ex-dividend.