Footsie slumps as Barclays and RBS's sell-off drives banking sector lower

FTSE: 5,856.58 (–73.15) Mid-250: 11,650.34 (–138.58) Small Cap: 3,280.19 (–11.04)UK STOCKS tumbled yesterday, led by a sell-off in banks, as bond yields climbed in Italy and Spain amid concern that European aid will fail to contain the region's sovereign-debt crisis.

The benchmark FTSE 100 dropped 73.15, or 1.2 per cent, to 5,856.58 in London.

The gauge has lost 2.7 per cent since this year’s high amid concern countries from Ireland to Greece will struggle to repay their debt.

“The financial sector has been purely driven by peripheral sovereign-bond yields,” said Graham Bishop, an equity strategist at RBS in London.

“The initial response to the European bailout package was positive, but it’s no silver bullet so markets are testing policy makers’ resolve again,” he said.

Barclays, the UK’s second-largest bank by assets, slumped 3.4 per cent to 221p.

RBS, the third-biggest, dropped 3.2 per cent to 35p.

Lloyds retreated 4.3 per cent to 43.2p.

Goldman Sachs lowered its recommendation for European banks to “neutral” from “overweight” after the industry rallied last week on Greece’s second bailout.

“After the initial optimism, doubts have started to creep back into the market,” London-based strategist Peter Oppenheimer wrote in a report on Wednesday.

The brokerage also said loan growth will probably remain weak, while concern will continue that banks need to raise further capital.

Sovereign debt worries prompted punters to turn to traditional safe havens to protect their returns such as silver and gold, which soared to another record high.

That has helped miners such as Fresnillo and Randgold outper-form the broader market as investors have used them as a proxy for the precious metals.

Meanwhile, Lonmin gained 1.3 per cent after Credit Suisse upgraded its rating on the platinum miner to “neutral” from “underperform”, citing valuation grounds.

Autonomy paced advancing shares, climbing 3.9 per cent to 1,720p.

Rival Sage increased 1.6 per cent to 281.4p after saying nine-month results were in line with estimates.

ITV rallied 1.3 per cent to 68.9p after the UK broadcaster held a conference call with analysts. – (Bloomberg/Reuters)