London slides into the red as Euro debt fears deepen

Investors' confidence was rattled after ratings agency Standard and Poor's warned the price of bailing out Anglo Irish Bank could exceed 35bn euros (30bn) fuelling concerns over European recovery.

This was compounded by weak UK housing data released earlier in the session, revealing a six-month low in mortgage approvals for house purchases, which contributed to the FTSE 100 Index closing 9.17 points lower at 5569.27.

The pound came under pressure after Adam Posen, a member of the Bank of England's Monetary Policy Committee, called for more quantitative easing. Sterling was down against the dollar and euro at 1.58 and 1.15 respectively.

Banking stocks were among the major Footsie losers, with HSBC down 101/2p at 649p, Lloyds off 0.95p at 74.3p and Barclays slipping 3.8p to 3051/4p.

The biggest faller, however, was Vedanta Resources. Shares dropped four per cent, or 96p to close at 2165p, after it was ordered to close one of its key smelting plants in India.

Meanwhile, BP surged four per cent, up 15.85p to 421p, after incoming chief executive Bob Dudley announced a series of measures aimed at rebuilding the shaken company.

Mr Dudley, who takes over from embattled boss Tony Hayward on Friday, said he hoped the launch of a new safety division would restore trust after the Gulf of Mexico disaster.

Elsewhere in the top flight, BP's competitors failed to follow suit, with Royal Dutch Shell down 91/2p at 18461/2p, Tullow Oil holding at 1283 and Cairn Energy slipping 2p to 458.1p.

Airport scanners and medical devices firm Smiths Group reported a 17 per cent rise in annual profits to 435m, but an initial rally in shares faltered as investors noted cautious comments over the potential impact of government spending cuts on sales growth. Stocks were down 18p to 1196p.

Rolls-Royce surged ahead three per cent or 201/2p to 612p after Morgan Stanley upgraded the stock and said the City may have missed the potential for improved profitability following the recovery in after-markets.

Other firms on the front foot included Smith & Nephew, which climbed 9p to 5731/2p, while industrial testing firm Intertek added 16p to 1836p.

Elsewhere, Dairy Crest clawed back some recent falls to rise 23.6p to 372.6p in the FTSE 250 Index after it announced that it has renewed a contract to supply the supermarket Morrisons with fresh milk through to 2015.

Transport provider FirstGroup added 18.4p to 368p after reporting signs of more stable trading in its North American school bus arm.

The Aberdeen-based group said demand for first class train travel was recovering to levels not seen since the recession struck and said it was trading in line with management expectations.

Advance sales of first class tickets, flexible and anytime tickets have increased as travellers continue to look for value.

A company spokesman said: "Demand is coming back to where it was two years ago - it's an indicator of people changing the way they travel.

"They are increasingly wanting to go back to having more flexibility."

Its bus division is Britain's largest bus operator with a fleet of 8,500 buses carrying around three million passengers a day in more than 40 towns and cities.

The biggest stock markey risers yesterday were Wolseley up 96p to 1591p, BP ahead 15.8p at 421p and Rolls-Royce up 20.5p at 612p.

The biggest losers was Vedanta Resources down 96p at 2165p.