Footsie slips back into red amid political uncertainty

The blue-chip index was down more than 2 per cent for much of the day but pared losses as prospects of a pact between the Liberal Democrats and Conservatives hardened, leaving the Footsie down 1 per cent, or 53.21 points at 5334.21.

The more nervous session came after the 5 per cent gain seen on Monday in the top flight's best day for 18 months.

Wall Street's Dow Jones Industrial Average was flat in early trading – failing to extend its previous 4 per cent advance – while Asian markets were also on the back foot.

In Europe, France's CAC 40 was 0.8 per cent lower alongside a 0.3 per cent fall for the Dax in Germany.

"It will come as a relief to many investors once this particular unknown gets taken out of the equation," Tim Hughes, head of sales trading at IG Index said.

Despite the political drama, the latest sale of UK gilts was two and a half times oversubscribed and manufacturing figures showed the sector growing at its fastest pace for eight years in March.

In the US, the earnings season continued, with Church & Dwight posting a first-quarter profit that beat expectations. However, the consumer products company also gave a weak second-quarter earnings outlook, and its stock fell 3.5 per cent to $66.96.

Walt Disney was scheduled to report its results after the market closed yesterday. The stock rose 1.5 per cent to $35.83 and ranked among the Dow's biggest advancers.

The pound strengthened above 1.49 against the dollar as initial fears of a pact between Liberal Democrats and Labour following Gordon Brown's resignation as party leader faded.

Sterling made more ground against the euro, trading at 1.17 against the single currency. Several of the stocks which made double-digit gains on Monday were on the back foot.

Royal Bank of Scotland – downgraded by Deutsche Bank – fell 13/4p to 50p, or 3 per cent, while Lloyds Banking Group was 3/4p down to close at 601/4p.

Kazakhmys, meanwhile, led a host of miners lower, falling 55p to stand at 1270p, or 4 per cent, as metal prices took a breather from their strong previous gains due to a weaker euro against the dollar and fears over a tightening of monetary policy in China sapping demand.

In corporate news, Thomson Holidays owner TUI Travel was 93/4p down to 2487/8p after revealing a 90m dent to profits from the volcanic ash cloud but holding its full-year guidance.

Rival Thomas Cook fell 71/4p to 219p, while in the FTSE 250 budget airline easyJet – which downgraded its own annual profits forecasts yesterday morning – slipped 183/4p to 4231/2p.

EasyJet, which has had to cancel more than 6,500 flights so far, said the cloud could cost it up to 75m.

Pubs group Enterprise Inns was heading the other way in the second tier, with shares bubbling up 14 per cent, or 171/4p to 1391/4p, after a refinancing deal eased concerns over its balance sheet.

Signs of stabilising trading despite challenging conditions also helped rival Punch Taverns gain ground, up 4.4p to 83.4p.

The four biggest Footsie risers were Randgold Resources up 290p to

5870p, Aggreko ahead 38p to 1279p, BT up 25/8p to 1187/8p and Icap ahead 33/4p to 3711/4p.

The four biggest Footsie fallers were Kazakhmys, Vedanta Resources down 100p to 2451p, Xstrata off 42p to 1050p and TUI Travel.