Financials pull Footsie back following rally in wake of European debt deal

FTSE:5,702.24 (-11.58) Mid-250:10,773.07 (+39.73) Small Cap:2,882.83 (-1.87)

BRITAIN’S FTSE 100 share index closed down yesterday, as investors gave pause to the sharp gains made on the outline deal announced by government leaders on Thursday to tackle the euro-zone debt crisis, with banking stocks among the top fallers.

London’s blue chip index closed down 11.58, or 0.2 per cent at 5,702.24, having gained 2.9 per cent on Thursday, as the FTSE failed to hold above its 200-day moving average of around 5,720.

“Intra-day momentum oscillators are losing upward momentum and are turning down from their overbought territory,” Nicolas Suiffet, analyst at Trading Central, said.

“The immediate trend is down but the momentum is weak. A pause is likely ahead of a new up leg,” he said, adding his preference was for a long position above 5,621 with a target of 5,770.

“Following the progress that risk assets have made, we are braced to see more downside from here as investors begin to look for more detail (on the European debt deal),” said Lothar Mentel, chief investment officer at Octopus Investments. “We remain cautiously positioned and ready to move to take advantage of opportunities that present themselves.”

Banks, which rose 7.9 per cent in the previous session, fell as investors banked profits. The sector is down more than 18 per cent in 2011.

Royal Bank of Scotland shed 3.6 per cent, while other financials such as insurer Aviva, down 3.3 per cent, also succumbed to profit-taking following sharp gains on Thursday.

Hedge fund firm Man slipped 4.7 per cent ahead of a trading update next week.

HSBC and Standard Chartered, banks which have more exposure to Asia than in Europe, however, were up as much as 1.8 per cent as investors looked to tap into their defensive qualities.

Reminders of the risk still posed by Europe’s debt situation came with Italian government bond yields rising yesterday after a disappointing debt auction suggested the euro zone rescue deal had not gone far enough.

Shares in British Airways and Iberia owner International Consolidated Airlines Group (IAG) dipped 3.2 per cent as UBS reduced its target price to 240 pence from 260 pence.

Shire, Britain’s third-largest drugmaker, fell 0.6 per cent after reporting third-quarter revenue results. – (Reuters)