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World markets under pressure
on 05/07/2012 17:45:13
Wall Street's Dow Jones Industrial Average was 0.6% lower after Mario Draghi warned the outlook for the euro-area outlook was clouded with uncertainty and downside risks.
In London, the FTSE 100 Index was 14 points lower at 5670 after the initial boost from the Bank of England's decision to inject £50 billion into the UK economy lost steam.
Mr Draghi said the rate cut was justified as the ECB's fear of a broader slowdown across the eurozone had materialised.
His comments came as countries such as Spain and Italy battle high borrowing costs and unemployment across the currency bloc hits record levels.
And in the UK there are signs the economy deteriorated in June as industry surveys showed that the construction sector went into reverse and the powerhouse services sector suffered its worst performance for eight months.
The Bank's action also hit the value of the pound against the US dollar and Japanese yen as the market will be effectively be flooded with extra sterling.
A decision by China to cut its interest rate for the second time in a month boosted the heavily-weighted resources sector with Xstrata adding 11.4p to 832.2p and Glencore ahead 0.5p at 312.5p.
The banking sector remained under pressure as Barclays saw its credit rating outlook downgraded by agency Moody's to reflect concerns over Bob Diamond's resignation as chief executive in the wake of the rate-rigging scandal.
Shares in the embattled bank rose 0.4p to 166.4p as it bounced back from recent hefty falls.
Meanwhile, taxpayer-backed lenders Lloyds Banking Group and Royal Bank of Scotland were among the biggest fallers as investors remained concerned that the Libor-fixing affair was set to become an industry-wide issue. Lloyds fell 0.9p to 30.7p while RBS dropped 7.2p to 207.3p.
In corporate news, Aviva's shares were slightly lower after the embattled insurance giant unveiled a major sell-off plan as part of a broader turnaround.
Executive chairman John McFarlane said a review of 58 divisions had identified 16 weak performers that would be exited. Shares were down 0.2p at 281.6p.
Shares in engineering group GKN jumped 11% after it bought the aero engine division of Sweden's Volvo for £633m.
Investors backed the deal which will help GKN benefit from global growth in airlines' aircraft orders. GKN shares were ahead 20p at 206.6p.
Outside the top flight, Cineworld shares fell by nearly 1% after the UK's largest cinema operator revealed a decline in admissions in the first half of its financial year.
The group saw admissions fall 0.8% but box office revenues rose 4.1% in the 26 weeks to June 28 as it bumped up prices. Shares dipped 1.7p to 207.8p.