FTSE drops as credit fears hit banks

16/10/2007 01:39

By Rebekah Curtis

LONDON (Reuters) - The top share index fell 1.3 percent on Monday, with Northern Rock leading losses in an embattled banking sector, while specialist materials group Johnson Matthey bucked the trend with a surge on the back of bid talk.

Volatile shares in Northern Rock fell back more than 20 percent after a cautious statement from the troubled mortgage bank said talks with suitors over its options are preliminary and analysts said prospective takeover interest from billionaire Richard Branson is unlikely to result in investors getting more than the current share price.

Share price falls in banks took 23 points off the FTSE 100 <.FTSE> index, with Alliance & Leicester off 5.8 percent and Royal Bank of Scotland down 3.6 percent.

Credit Suisse separately cut its target price for the stock to 180 pence from 390 pence.

The FTSE 100 ended down 86.2 points at 6,644.5, with only a handful of stocks ending the trading session in positive territory.

Wall Street slipped as an announcement that major banks, including Citigroup, were assembling a fund to support the struggling asset-backed commercial paper market failed to allay all of investors’ concerns about the credit squeeze that hit markets this summer.

"This (credit) problem is not going to disappear. Nobody has .....continued below

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suggested that we are going to solve the problem overnight," said Edward Menashy, an economist and strategist at Charles Stanley.

"(But) I really do feel that the worst is behind us," he added.

M&A BOOST

Shares in platinum specialist Johnson Matthey surged 9.9 percent to top the FTSE-100 <.FTSE> gainers on bid talk, traders said, citing talk of a 2,000 pence per bid.

A spokesman for the company declined to comment.

Energy shares also bucked the trend, as U.S. crude oil rose to an all-time high above $85 a barrel, propelled by robust demand and fresh geopolitical worries.

BP tacked on 0.6 percent while Royal Dutch Shell gained 0.5 percent.

But pan-European electrical goods retailer DSG International fell 6.4 percent ahead of its first-half trading update on Thursday.

Brewer SABMiller shed 4.7 percent after it said its half-year underlying beer volumes rose 11 percent, but showed a slowdown in some of its most profitable regions such as Latin America.

The brewer also cautioned that growth in revenue was partially offset by higher input costs, such as for barley, glass and aluminium, and rising investment across its business such as a new brewery and improving beer distribution in Colombia.

Insurer Legal & General dipped 4.4 percent after a JP Morgan research note said the sell-off in the stock is not complete, with the group’s core annuities & protection business under pressure.

Among midcaps, Rank Group dropped 12.2 percent following a 21 percent plunge on Friday when the firm warned of a big fall in operating profit at its bingo and casino operations.

(Additional reporting by Michael Taylor)

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