FTSE 100 plunges over lawsuit fears

LONDON’S leading shares index plunged into the red today as shares in Britain’s banks were hit by fears over a lawsuit launched against them in the United States.

Royal Bank of Scotland and Barclays both lost more than 7% while HSBC shed more than 1% after the Federal Housing Finance Agency (FHFA) filed claims against them and 14 other banks over the subprime mortgage scandal.

The wider FTSE 100 Index, still reeling from a dismal jobs report in the US on Friday and following a weak session in Asia, fell by more than 1% in early trading.

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The FHFA claims the banks misrepresented the quality of billions of dollars of home loans sold to America’s state-backed mortgage giants Fannie Mae and Freddie Mac.

RBS has said the allegations are unfounded and it will defend them vigorously.

Lloyds Banking Group, which is not on the FHFA’s target list, fell more than 3% as sentiment in the banking sector weakened.

RBS, HSBC and Barclays could be forced to pay out more than £5 billion in damages, according to reports.

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There was more gloom for the banking sector in a report by forecasters at the Ernst & Young ITEM Club.

The financial services sector in the UK faces sluggish growth, the ITEM Club warned, threatening the recovery prospects of the wider economy.

The worst US employment data for nearly a year, showing the number of people employed in August was flat, fuelled fears of a new global recession.

The renewed concerns over growth hit the heavily weighted mining sector, sending shares in copper giants Kazakhmys and Antofagasta to the bottom of the FTSE 100.

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Oil prices were also damaged by the concerns over global demand with Brent crude in London dropping nearly 1% to 111.58 US dollars per barrel.

The retail sector was also on the back foot after accountancy firm BDO said the high street recorded its worst sales in two years in August as the riots that shook the UK had taken a heavy toll.

Elsewhere, Ann Harvey and Kaliko owner Alexon Group slumped nearly 36% after it warned like-for-like sales plummeted 9% in August and it now expected its full-year performance to be well below expectations.

High street bellwether Marks & Spencer fell 2%, B&Q parent Kingfisher dropped nearly 2% and Currys and PC World owner Dixons Retail shed nearly 5%.

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The renewed fears over global growth saw traders plough into safe-haven asset gold, which was higher at 1892 US dollars an ounce.

Gold miner Randgold Resources was one of two risers on the FTSE 100 Index, adding just 0.3% to its value.

Randgold Resources was joined on the risers board by BP, which was buoyed by reports that its Moscow office had resumed work following a raid last week.