FTSE sinks to 15-month low

Britain's top share index hit a 15-month closing low on Tuesday, with banks and commodity stocks leading a broad-based sell-off, as growing doubts over Greece's ability to stave off a debt default triggered fears of financial turmoil. The UK benchmark ended down 131.06 points, or 2.6 percent, at 4,944.44, its lowest close since July 5, 2010.
Markets drew some comfort after US Federal Reserve Chairman Ben Bernanke said the Fed is prepared to take further steps to help an economic recovery that is "close to faltering", with the FTSE 100 briefly paring back losses. But uncertainty over Europe dominated sentiment, with investors concerned that European officials will be unable to prevent Greece's fiscal crisis from turning into a global banking crisis.
Banks were left nursing hefty falls. Franco-Belgian financial group Dexia came into sharp focus on worries about its high exposure to Greece. Its shares dropped 22.5 percent, despite assurances from France and Belgium that they would support it via guarantees. In the UK, Barclays dropped 7.6 percent, while Lloyds Banking Group and Royal Bank of Scotland shed 4.9 percent and 4.2 percent respectively.
In a meeting in Luxembourg, eurozone finance ministers said they were reviewing the size of the private sector's involvement in a second bailout package for Greece, a move that could hasten the threat of a debt default. "Politicians are two months behind reality, and their lack of clear leadership in the eurozone is spooking the markets," said David Miller, partner at Cheviot Asset Management, which has 3.5 billion pounds of assets under management.
"Investors can't see any reason to rush into investments at the moment and they are not being soothed by patchy announcements which offer words not actions." Adding to the gloom, Goldman Sachs economists lowered their global growth forecasts and now expect growth of 3.5 percent in 2012, compared with 4.2 percent previously.
They estimated 0.1 percent eurozone growth in 2012, with a mild recession in the fourth quarter of this year and the first quarter of 2012. "The downgrade is centred in Europe, where they (the economists) are concerned that uncertainty surrounding the sovereign (debt) situation is tightening credit conditions in the periphery and holding back spending decisions in the core," Goldman said.
Ed Woolfitt, head of trading at Galvan, said the FTSE 100's inability to close above 5,000, the bottom of a trading range seen over the last few weeks, puts the index "in a very precarious situation for tomorrow." "If we breach 4,800 (tested in early August), I see no support left in this market. We would be quite frankly in freefall, and where we end up is anyone's guess. The next level of support could be drawn at 4,000, but that's clutching at straws."
Commodity stocks fell too, with energy shares retreating along with oil as the outlook for demand grew murkier. Miners were a major weight as Credit Suisse echoed Morgan Stanley's short-term downbeat sentiment on the sector, cutting 2012 earnings forecasts for diversified and base metal miners by up to 30 percent. Lonmin shed 5.3 percent and Anglo American fell 3.4 percent, as Credit Suisse downgraded their respective ratings to "underperform" and "neutral".
Industrials IMI and Weir Group were the FTSE 100's biggest fallers, both down more than 7 percent, as traders underlined their sensitivity to the economic cycle. Among individual movers, International Airlines Group dropped 3.4 percent on growing fears that its transatlantic partner American Airlines is headed for bankruptcy. Tesco headed a short list of gainers, up 2.6 percent, as UBS upgraded its rating for the retail group to "buy" and added the stock to its Key Calls list. Tesco will post first-half results on Wednesday, while peer Sainsbury will issue a trading update.