London slides into red as US data knocks sentiment

Immediate fears eased over President Barack Obama's banking reforms, helping UK bank stocks move higher.

But the Footsie closed in the red once more – down 42.68 points at 5260.31 – after news that US home sales took the largest monthly drop in more than 40 years last month.

The National Association of Realtors said that existing home sales fell 16.7 per cent in December to an annual rate of 5.45 million units. It was the sharpest decline on records dating to 1968 and the slowest sales pace since August.

Analysts, who had expected a 5.90 million unit pace, said the slump underscored the degree to which the housing market recovery was reliant on government aid.

The decline was a lot bigger than expected and took the wind out of an early session rebound on America's Dow Jones Industrial Average.

US bargain hunters had seen the Dow move nearly 1 per cent higher soon after opening, but it later struggled to hold on to gains.

In London, the FTSE 100 drop marked the fourth straight session of falls and follows hefty declines last week after President Obama announced a "fight" with Wall Street, with proposals that could prevent US banks that take customers' deposits from engaging in risky activities.

But yesterday, Barclays and part-nationalised Royal Bank of Scotland led a bounce back in the financial sector. Barclays rose 2 per cent, or 45/8p, to 276p and RBS added 5/8p to 353/8p, while Asian-facing group Standard Chartered gained 17p to 1445p.

Bank bonus rumours gathered pace in the sector, with Goldman Sachs reportedly capping pay and bonuses for its top UK bankers at 1m, as G7 representatives debate reforms in the sector at a meeting convened by City Minister Lord Myners.

Insurers were also benefiting from the cheerier sentiment in the top tier, led by Legal & General with a 4 per cent, or 23/4p, hike to 79p. RSA Insurance and Standard Life followed not far behind, ahead 25/8p at 1283/8p and 21/8p at 2011/2p respectively.

Outside the top flight, housebuilders were in the spotlight after Morgan Stanley raised its target price on Persimmon and a survey from Rightmove said more than half of people expect house prices to continue increasing in the next 12 months.

Redrow added 3/4p to 1293/4p, but Persimmon failed to hold on to early rises, closing the session down 2p to 451p.

Meanwhile, Hornby shares were on the right track, with a 3p rise to 1441/2p as the firm allayed recent fears over prospects by delivering a strong Christmas sales update.

Best-sellers for the Margate-based company included Scalextric products based on the Formula One Grand Prix teams, and Disney/Pixar's animated adventure Cars.

Bournemouth-headquartered department store chain Beale suffered a 3 per cent drop – down 1p to 291/2p – as it said the January snow had hit sales and offset an improved performance over Christmas to leave sales down 3.4 per cent overall in the first 11 weeks of its new financial year.

The biggest Footsie risers were Legal & General, RSA Insurance, Royal Bank of Scotland and Barclays.

The biggest Footsie fallers were Man Group down 73/4p to 2643/4p, Eurasian Natural Resources off 22p to 9321/2p, BT down 31/4p to 1393/8p and Rio Tinto slipped 72p to 3220p.