Banks in retreat after Portugal's rating downgrade to junk status

FTSE: 6,002.92 (-21.11) Mid-250: 12,136.09 (-9.33) Small Cap: 3,324.14 (+7.39)LONDON'S BANKS were back under pressure yesterday after a downgrade of Portugal's credit rating to junk status stirred concern about the euro zone debt crisis.

Moody’s, the rating agency, also said that Lisbon could even need a second bailout involving private investors, warning of the “increasing probability” that Portugal would not be able to tap the markets at sustainable rates for some time after 2013. It cut its overall rating by four notches to Ba2 from Baa1.

The news was enough to bring banking stocks back to the bottom of the FTSE 100. Barclays lost 3.8 per cent to 249.7p, Royal Bank of Scotland was down 3.4 per cent at 37.8p and Lloyds Banking Group fell 2.1 per cent to 47.7p.

The reaction underlined the market’s fears that the euro zone’s problems could get worse before they get better, setting the scene for further uncertainty.

“Considering the rationale for the Portuguese downgrade we are wondering who is going to be the first to cast their beady eye over Ireland’s rating,” said Gary Jenkins, head of fixed income at Evolution Securities.

The doubts ended the FTSE 100’s eight-session rally. London’s benchmark index fell just over 21 points to 6,002.92, a loss of 0.4 per cent. As risk appetite suffered on global markets, heavily-weighted resource stocks also fell. Miner Vedanta Resources fell 2.2 per cent to £20.22, while oil group BP was 0.9 per cent weaker at 455p.

Shares in EasyJet dipped after a strong run up to the company’s June passenger traffic figures. The numbers met forecasts, showing a 9.1 per cent increase in the number of people carried by the airline, taking its total number of passengers to 4.95 million. Even as the mid-cap stock lost 2.3 per cent to 358.3p, traders remained upbeat. Atif Latif, director of trading at Guardian Stockbrokers, said: “We still believe that EasyJet has the ability to continue to deliver superior growth given . . . a continued recovery in leisure demand will combine with a tighter capacity environment to lift yields.”

Booker Group made the best showing on the FTSE 250 after the wholesale retailer said total sales for the 12 weeks to June 17th rose 9.5 per cent year-on-year. The stock gained 10.5 per cent to 77.8p. – Copyright The Financial Times Limited 2011.