SHARP falls in the banking and insurance sectors wiped more than 1 per cent from Britain's leading share index yesterday amid thin trading volumes.
Investors appeared to take a breather following Thursday's volatile data-fuelled session.
The
benchmark FTSE 100 index narrowly avoided closing below the 5,400 barrier as a rebound from the mining sector and strong gains from retailers helped limit losses.
An otherwise quiet day for corporate news provided little distraction away from financial stocks, while Wall Street was out of action for the 4 July Independence Day celebrations.
Neil Parker, market strategist at Royal Bank of Scotland, said: "If you look at the technicals and the fundamentals, people think there is still some way for it (the Footsie] to fall, probably another 250 points before we get any recovery.
"Nobody wants to be long in this market ... I would be particularly worried by a lot of inflation numbers that are coming out."
The Footsie closed 63.8 points, or 1.2 per cent, lower at 5,412.8, notching up its seventh consecutive weekly loss.
Goldman Sachs said in a note to clients that European banks might need to raise between 60 billion and 90bn if a turn in the credit cycle triggered losses comparable with those seen a decade ago.
The brokerage also said it had lowered 2008-10 estimates for more than 40 banks and cut price targets on a number of them, including Royal Bank of Scotland, Barclays, Deutsche Bank and UBS.
Barclays sunk 13p to 279p and Royal Bank of Scotland was off 6.75p at 206.25p.
Bradford & Bingley was the worst-hit bank, down more than 18 per cent after being forced into another overhaul of its cash-raising plans.
B&B's private equity investor Texas Pacific pulled out of its fundraising plans on Thursday night after the bank was downgraded by ratings agency Moody's.
The bank's major shareholders have stepped in to support an enlarged rights issue, but shares still fell 11p to 50p in the FTSE 250.
Friends Provident was down 7p at 94.5p after Swiss Re said that it was no longer interested in bidding for the firm's Lombard Unit. Other insurers followed suit, with Legal & General among the worst hit, off 4.8p at 94.5p.
Supermarkets fared better after recent selling. Morrisons cheered 7p to 254.5p on a broker upgrade, while larger rival Tesco added 17.7p to 359.2p. Sainsbury's had been boosted on news of Qatari stakebuilding, but failed to hold on to earlier gains, later closing down 0.25p at 279.75p.
A turnaround in fortune for miners helped offset some of the falls for financial stocks, with the sector shrugging off earlier profit taking on weaker metal prices and a cautious note from Citigroup.
Rio Tinto rose 140p to 5,600p and Xstrata lifted 54p to 3,764p.
The full article contains 495 words and appears in The Scotsman newspaper.
