Return of eurozone debt: jitters takes toll on FTSE

Britain's leading share index closed lower on Monday, giving up early gains, as miners and banks went in to reverse after hopes for an imminent solution to Europe's debt crisis were dashed by comments from Germany's finance minister. The FTSE 100 index closed down 29.66 points, or 0.5 percent, at 5,436.70, having dropped from an intraday peak of 5,543.72, back below technically important levels around 5,450 which it breached for the first time in 10 weeks on Friday.
Wolfgang Schaeuble played down heightened expectations that European governments will resolve the region's sovereign debt crisis at a European Union summit on October 23. Finance ministers and central bankers of the Group of 20 major economies had said at the weekend they expected the EU summit to "decisively address the current challenges through a comprehensive plan".
Specialty miners and banks bore the brunt of the sell-off as investor appetite for such risk-sensitive stocks swung from sharply positive to negative. "Again, promises of decisive measures to come, but that's been heard many times before and, until there are concrete proposals, investors are right to remain relatively sceptical," said Henk Potts, market strategist at Barclays Wealth
"Based on the annual range of 6,105.80 to 4,791.00, the 50 percent level of this range at 5,448.40 was also an important price level to overcome. This makes 5,449.70 to 5,448.40 a key zone that must hold to sustain the rally. A close under this zone will likely lead to the start of a substantial correction," said James A. Hyerczyk, analyst at Autochartist.
Oils topped the blue chip sector performers mainly thanks to strong gains in BP, which added 2.2 percent after it and Anadarko, its partner in the well that caused last year's Gulf of Mexico oil spill, agreed a $4 billion settlement on clean-up costs. Oil services firm AMEC also stood out, gaining 1.7 percent, after unveiling a 150-million pound ($237 million) engineering and project management contract win as part of an existing tie-up with BP.
Oriel Securities said the deal gives "more visibility over Amec's medium-term forecasts", but kept a 'hold' rating on the stock on a relative valuation basis. G4S plunged 22 percent after agreeing to buy Danish outsourcing service provider ISS in a 5.2 billion pounds deal including debt, creating the world's biggest security and facilities services group.
"The deal could carry risks as a large transaction, in that it could dilute G4S focus on pure security, especially in government security and emerging markets security, and ISS may be unappealing to investors who turned down the IPO this year," J.P. Morgan Cazenove said in a research note.
US blue chips were 1.2 percent lower by London's close, with financials one of the biggest drags on the market as an earnings miss from Wells Fargo & Co, down nearly 6 percent, hit the sector, although earnings from Citigroup beat expectations. Computer maker IBM Corp will report third-quarter earnings after the Wall Street close on Monday, while Bank of America and Goldman Sachs will continue the US banks' reporting season on Tuesday.
"In order for the rally to continue, it's absolutely vital companies deliver consensus-beating results and give positive guidance for 2012 and beyond. Without that there is still the risk that macro uncertainty could unnerve investors," said Barclays Wealth's Potts.