Enlarge imageBy John Coppock
LONDON (Reuters) - The FTSE 100 index was down 2.2 percent by midday on Friday, led down by energy groups as the oil price neared a five-year low, while more misery was heaped on miners in the form of broker downgrades.
Banks were lower after a bearish note from Merrill Lynch, which said they face another "very tough" year in 2009.
At 11:30 a.m., the FTSE 100 index was 100.46 points lower at 4,230.20. "There's very little to excite the markets on the corporate front," said Jeremy Batstone-Carr, head of private client research at Charles Stanley.
"Conditions are ripe for a mini-rally after Christmas, but frankly people will still be thinking about the outlook for 2009. Then we'll get into January and see fourth-quarter earnings come out and a raft of downgrades.
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"It's going to take a while for the actions taken by the authorities to work through, and until we start to see the first green shoots of recovery, investors will remain very cautious."
Energy companies continued to lead the market lower as oil dropped below $36 a barrel to trade near a five-year low.
New York crude dropped 9 percent on Thursday, despite a production cut by OPEC, on global recession fears. The front-month contract for January expires on Friday; the new crude contract priced oil for February delivery at $42.22.
BP fell 4.7 percent to 499 pence, while Royal Dutch Shell declined 3.8 percent to 1,744 pence and Cairn Energy slipped 6.0 percent to 1,791 pence.
Shell shares were further hit by its announcement that it would not drill in Alaska's Beaufort Sea after a court ruling that said U.S. officials failed to consider environmental factors when granting the Anglo-Dutch oil group a permit.
Shares in Anglo American, Xstrata and Antofagasta, already reeling from plummeting metals prices, were further bashed by downgrades from UBS, which cut all three miners to "neutral" from "buy."
Earnings forecasts for Anglo American and Xstrata next year were cut by 83 percent and 85 percent respectively. Antofagasta's 2008 forecasts were trimmed by 9 percent on lower prices for copper, which hit a five-year low in Shanghai overnight.
Anglo, Xstrata and Antofagasta fell between 8.5 percent and 10 percent.
GRIM OUTLOOK FOR BANKS
Banks took a beating when Merrill Lynch analyst Stuart Graham slashed his earnings estimates for European banks by 15 percent, expecting the credit crunch to reduce asset quality and produce higher provisions.
Lloyds TSB shed a hefty 7.5 percent to 119 pence, HSBC dropped another 2.6 percent to 609 pence, Barclays lost 1 percent at 138.7 pence and Royal Bank of Scotland fell 1.4 percent to 45.2 pence.
Meanwhile, Goldman Sachs cut ratings for European chemicals companies, sending Johnson Matthey down 3.7 percent. The broker sees the company, which processes platinum to make catalytic converters, hitting 875 pence by the end of next year as the car industry shrinks.
Cruise ships group Carnival was one of the few stocks sailing into positive territory after the release of better-than-expected earnings in New York last night, rising 2.8 percent.
Numis Securities kept the stock as an "add," impressed by the company's ability to offer discounted and shorter duration cruise holidays to keep bookings alive in a downturn. Carnival is "strongly value-competitive against land-based vacations," the broker said, though it cut its price target.
Among other positives, markets retreated into the usual safe-haven stocks of pharmaceuticals and food retailers, with drugmakers AstraZeneca up 0.9 percent and GlaxoSmithKline up 1.8 percent.
