Bank stock weakness drags London market into the red

The Footsie 100 Index slumped to its lowest level in a month as the proposals to limit the risk-taking and size of retail banks sunk in, leaving Barclays more than four per cent lower, and Royal Bank of Scotland down two per cent.

The London market eventually closed 32.11 points lower at 5302.99 – its third straight losing session – with Dow Jones Industrial Average also opening in the red on Wall Street.

The pound also lost ground on Friday, sliding to 1.61 against the

dollar and below 1.14 against the euro.

A much smaller-than-expected increase in retail sales volumes during December dampened expectations of imminent rate rises as well as casting a shadow over fourth-quarter gross domestic product figures this week, when the UK is expected to have pulled out of recession.

In London, Barclays, which acquired Lehman Brothers' North American trading and investment banking assets in 2008, was the biggest banking casualty as its shares dropped again after the six per cent decline seen at Thursday's close.

President Obama's drive to limit risk-taking by United States banks could mean that retail banks are banned from using their own money in investments, while they may also face restrictions on owning a hedge fund or private equity fund.

The pressure on Barclays, which fell 11.65p to 271.35p, was compounded by continued rumours that it may need to tap shareholders for fresh capital.

Royal Bank of Scotland was 0.64p lower to stand at 34.68p although

Lloyds Banking Group was up 0.3p to 53.6p amid initial hopes that its limited American exposure may provide some shelter from Friday's turbulence.

Brokers ICAP and Tullett Prebon also tumbled on the Obama banking clampdown over fears that share trading volumes could be hurt.

ICAP was the biggest top-flight faller, down 28p at 397.7p – more than six per cent – while Tullett declined 19.8p to 310.1p in the FTSE 250.

The London Stock Exchange was also down 30p to 6641/2p in the top

flight.

The uncertainty prompted investors to favour more defensive sectors, with Tesco up 0.8p to 4213/4p, and Severn Trent up 1p to 1148p.

Imperial Tobacco edged 1p up to 2008p.

There was little in the way of corporate news to deflect attention from the situation affecting the banks.

Improved weekly trading figures from John Lewis, with department store sales up 11.1 per cent, had little impact on the retail sector as Argos firm Home Retail dropped 4.9p to 257.2p and Marks & Spencer dipped 2.4p to 348p.

At Waitrose, which is the grocery arm of the John Lewis Partnership, sales rose 16.6 per cent as warnings of further snow prompted shoppers to stock up on goods which can be stored for longer.

Waitrose director Ailsa Emerson said: "The big freeze has brought out a new love of the freezer, helping drive total sales."

B&Q owner Kingfisher was the rare exception among the retailers, up 0.2p to stand at 2231/2p after an upgrade from Morgan Stanley analysts.

The biggest Footsie risers were Xstrata up 26p at 1125p, Eurasian Natural Resources ahead 16p at 9541/2p, Invensys lifted 3.7p to 307.1p and Kazakhmys advanced 14p to 1294p.

The biggest Footsie fallers were ICAP down 28p at 397.7p, LSE off 30p at 6641/2p, Barclays slipped 11.65p to 271.35p and Resolution fell 3.20p to 80.3p.