FTSE tumbles into the red amid Europe debt concerns

Chancellor George Osborne's bid to balance Britain's books appeared to win support in the City yesterday after the pound rallied against the dollar and euro.

Mr Osborne was given a further boost by rating agency Fitch, which said the Budget proposals materially strengthened confidence in the UK's finances as the country battles to avoid a costly downgrade to its AAA rating.

The FTSE 100 Index remained in the red, however, amid wider concerns over Europe's debt crisis and after an uncertain opening on Wall Street.

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US stocks sank, with benchmark gauges dropping the most in three weeks, as home sales unexpectedly dropped and the Standard & Poor's 500 Index slipped for a second day below chart levels monitored by analysts.

Alcoa, Caterpillar and Home Depot fell more than 2.5 per cent to lead losses in the Dow Jones Industrial Average after the National Association of Realtors said sales of homes decreased 2.2 per cent in May.

Halliburton declined 3.9 percent as the Obama administration said it will appeal over a judge's decision to lift the White House's deepwater drilling ban.

In Britain, the top flight closed 52.13 points lower at 5246.98. Interest rates are expected to remain lower for longer due to yesterday's Budget, but this was offset by general approval of deficit-cutting measures as the pound rose to 1.48 against the US dollar and by 1 per cent to more than 1.20 against the euro.

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The Budget announcement of a 2.5bn tax on bank balance sheets was met with relief as there had been expectations of a more severe penalty.

Taxpayer-backed player Lloyds Banking Group was up 4 per cent, or 2.3p to 59p and Royal Bank of Scotland lifted 0.3p to 47.1p but those with more international operations suffered as it emerged France and Germany were also making joint statements on a similar balance sheet tax. Barclays fell 2 per cent, or 6.35p to close at 3103/4p.

The sector was earlier under pressure after a Fitch ratings downgrade on BNP Paribas revived worries that Europe's sovereign debt mountain will slow growth and undermine the financial system. Meanwhile, BP slumped to a low after its 50 per cent share price drop since the Deepwater Horizon explosion in April. The stock hit its lowest point since 1997 after Goldman Sachs slashed its rating on the oil giant, which finished the session 15.3p lower at 334.2p.

Other commodity stocks were also under pressure as Cairn Energy dropped 11.9p to 433p and BG Group fell 41p to 1084p after Goldman also downgraded the explorer and noted the potential for delays in key development projects.

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One of the biggest moves of the session came from leisure group Whitbread after it reported a strong performance from its Premier Inn hotels chain.

Premier's like-for-like sales jumped 10.5 per cent in the first quarter as the division benefited from increased marketing and the roll-out of value-for-money weekend offers. Whitbread shares were 53p higher at 1531p.

Outside the top flight, military supplies firm Chemring dropped 6 per cent after its half-year earnings report disappointed analysts.

It saw a 7 per cent rise in profits to 42.3m and a 25 per cent improvement in its order book to 751m, but investors were disappointed by the absence of any other positive surprises. Shares were 199p lower at 3111p.

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The four biggest Footsie risers were Lloyds Banking Group up 2.3p at 59p, Whitbread ahead 53p at 1531p, Intertek up 41p at 1504p and Wm Morrison ahead 6.9p at 268.1p.

The biggest fallers were Carnival down 128p at 2424p, BP off 15.3p at 334.2p and BG down 41p at 1084p.