US economic worries keep Footsie mired in the red

The FTSE 100 Index closed 10.57 points lower at 5148.28 – its fourth negative session in a row – after it emerged that US homebuilders' confidence in the housing market sunk to the lowest level in more than a year.

The report added to uncertainty on Wall Street after the Dow Jones Industrial Average dropped 2.5 per cent on Friday due to disappointment over the second quarter results posted by two of the country's big banks.

US homebuilder sentiment fell more-than-expected in July to the lowest level in more than a year after a popular homebuyer tax credit expired in April, the National Association of Home Builders said.

The NAHB/Wells Fargo Housing Market index fell two points to 14, the lowest level since April 2009, the group said in a prepared statement. It was the second straight decline in the index.

Economists had expected the index to fall to 16. June was revised lower to 16. A reading below 50 indicates more builders view sales conditions as poor than good. The index has not been above 50 since April 2006.

BP also weighed on the top flight in London after the discovery of seepage and possible methane gas near the site of its damaged well, which was capped for the first time since April on Thursday.

The US government earlier asked BP to come up with a plan for the reopening of the capped well but has instead allowed the company to carry out another 24 hours of monitoring. Shares closed 5 per cent, or 191/4p lower to stand at 3877/8p.

Nerves in the banking sector were also very much in evidence after Bank of America Merrill Lynch and Citigroup revealed on Friday that investment banking revenues dropped in the quarter, fuelling concerns about the performance of Barclays and other banks with similar activities.

The results of European bank stress tests due to be announced at the end of this week were also on the minds of investors, although Barclays later recovered to stand 5/8p higher at 2851/4p and HSBC advanced 11/2p to 6231/8p. Lloyds finished 3/8p lower at 591/4p, while Royal Bank of Scotland slipped 1/8p to stand at 431/2p.

This was after the body charged with managing the taxpayer-owned banking assets said it had hired leading investment banker Jim O'Neil to oversee the sale of stakes in Lloyds and RBS.

The biggest rise in the top flight came from International Power after it emerged that it had reopened talks over a potential combination with GDF Suez.

Shares jumped 331/4p to 350p, a rise of 10 per cent.

The other major deal news involved industrial firm Tomkins, which jumped 28 per cent after it said it had received an approach worth 325p-per-share from a consortium comprising US private equity firm Onex Corporation and the Canada Pension Plan Investment Board. The UK firm – a former member of the FTSE 100 – said the due diligence process was now at an advanced stage as shares climbed 637/8p to stand at 2941/4p.

The 2.9bn takeover move fuelled interest in fellow industrial products firm Invensys, which climbed 71/2p to 2723/4p.

Elsewhere, chilled food company Uniq plunged 41/2p to 11p, after it revealed the Pensions Regulator had rejected its proposal to resolve a funding deficit.

The biggest Footsie risers were International Power, Invensys, Standard Chartered up 34p to 1740p and Rio Tinto ahead 431/2p to 30481/2p.

The biggest fallers were BP and Associated British Foods declining 25p to 1031p.