Downbeat US data leaves London market in the red

The Dow Jones Industrial Average was more than 100 points lower in early dealings after the US investment bank provided the latest sign of weakness in the current corporate results season.

But the losses were erased over speculation the US Federal Reserve will take steps to spur lending. An increase in US building permits sent homebuilders and commodity producers up.

Goldman Sachs said quarterly earnings tumbled 82 per cent, coming in short of expectations, as trading and underwriting revenue slumped, raising questions about how well Wall Street's pre-eminent bank can navigate a shifting industry landscape.

Second-quarter net income of $453m was hurt by charges, including a settlement of a civil fraud suit and a British tax on bank executive bonuses.

But even stripping out those costs, Goldman's return on equity, a measure of the bank's ability to squeeze profits out of shareholders' money, was just 9.5 per cent. Over the prior four quarters, the average was close to 25 per cent.

The FTSE 100 Index closed in the red, although it managed to pull back from the worst of its losses to stand 8.82 points down at 5139.46.

IT firms were among the biggest fallers on London's Footsie after Cable & Wireless Worldwide issued a profits warning.

News overnight on Wall Street of lower than expected revenues at IBM added to the pressure.

The UK economy was also in the spotlight after public finance figures revealed worse-than-expected borrowing in June.

However this failed to dent progress by the pound, which rose 0.4 per cent to 1.53 dollars and 0.6 per cent to 1.18 euros.

Among stocks, shares in C&W tumbled 17 per cent after it said non-contracted public sector spending had "slowed significantly" since the emergency Budget last month and would hit trading as a result.

C&W's slump of 141/2p to stand at 69p comes just four months after it split from its regional telecoms business.

BT, which is a supplier of networks and IT systems for major organisations, was caught in the sell-off as its shares slipped 3 per cent, or 41/2p to 1341/2p.

The update also impacted outsourcing firms, with Serco shares down 33p to 537p and Capita off 221/2p to 718p ahead of interim results due this morning.

In the FTSE 250 Index, IT services firm Logica was 7p lower to stand at 1013/4p after Panmure Gordon cut its price target and said it expected the firm to be cautious about prospects in the UK public sector when it posts half-year results.

Elsewhere, BP spent most of the session in positive territory as experts said a seepage near its ruptured Gulf of Mexico well was unlikely to be related to the

present crisis. But the firm lost gains late on in the session to stand 3/8p lower at 3871/2p.

Outside the top flight, shares in Enterprise Inns jumped after it said average income per pub during the third quarter of its financial year was in line with a year earlier, compared with a decline of 3 per cent in the six months to March 31.

Shares rose 41/4p to 981/4p and helped rival Punch Taverns improve 4p to 71p.

De La Rue slumped 16 per cent, or 147p to stand at 7761/2p, after the world's largest printer of banknotes said quality issues at one of its plants had forced it to suspend production of some of its banknote paper.

The biggest Footsie risers were Rio Tinto up 1241/2p to 3173p, Vedanta Resources ahead 88p to 2316p, Xstrata advancing 333/4p to 9517/8p and BHP Billiton up 551/2p to 1872p. The biggest fallers were Cable & Wireless Worldwide, Serco, ICAP down 141/4p to 3925/8p, and BT.