Bloomberg News

U.K. Stocks Tumble on European Bailout Concern; Banks Retreat

October 31, 2011

Oct. 31 (Bloomberg) -- U.K. stocks tumbled the most in five weeks, trimming the FTSE 100 Index’s biggest monthly advance since 2009, as investors awaited details on how Europe will fund its expanded bailout facility.

Xstrata Plc, BHP Billiton Ltd. and Vedanta Resources Plc all sank more than 6 percent as copper fell on China’s plan to maintain property curbs. Banks and insurers pared last week’s rally as bond risk climbed and MF Global Holdings Ltd. filed for bankruptcy. Homeserve Plc plunged 28 percent.

The FTSE 100 retreated 158.02, or 2.8 percent, to 5,544.22 at the close in London as all but three stocks fell. The gauge has still gained 8.1 percent this month after euro-area policy makers expanded the bailout fund ahead of this week’s Group of 20 summit in France. The FTSE All-Share Index lost 2.7 percent today and Ireland’s ISEQ Index slipped 1.1 percent.

“Traders continue to rein in some of last week’s enthusiasm ahead of key economic meetings,” said Ben Critchley, a sales trader at IG Index. “After the positive knee-jerk reaction by markets, many now want to see further details.”

U.K. stocks surged this month as investors speculated European policy makers will contain the debt crisis that threatens the global economy. The leaders last week agreed to expand the bailout fund to 1 trillion euros ($1.4 trillion) and persuaded bondholders to take 50 percent losses on Greek debt.

G-20 members meet at a summit on Nov. 3-4 in Cannes, France, as European governments seek financial support from countries outside the euro area. They have already sought help from China and cooperation from the International Monetary Fund.

Miners Decline

Xstrata paced a selloff in mining companies, falling 7.7 percent to 1,045.5 pence. BHP, the world’s largest mining company, dropped 6.4 percent to 1,967.5 pence and Vedanta Resources Plc declined 9 percent to 1,278 pence.

Copper for three-month delivery lost as much as 3.7 percent in London as Chinese Premier Wen Jiabao said the government will “firmly” maintain property curbs and local authorities should continue to strictly implement real-estate policies. China is the world’s biggest consumer of the metal.

A gauge of bank shares retreated as the cost of insuring against default on corporate and sovereign debt rose amid waning confidence in Europe’s rescue plan.

RBS dropped 7.8 percent to 24.23 pence. Barclays, which today reported better-than-estimated third-quarter profit, still fell 2.9 percent to 195.3 pence, after earlier rising as much as 5.1 percent. HSBC Holdings Plc, Europe’s biggest bank, lost 3.6 percent to 544.9 pence.

MF Global

The shares also retreated after the holding company of MF Global filed for bankruptcy after making bets on European sovereign debt. The firm listed total debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today.

The FTSE 350 Banks Index last week surged 9 percent, the biggest weekly advance since August 2009.

Insurers also declined today. Aviva Plc dropped 6.1 percent to 340.8 pence, Prudential Plc slid 2.5 percent to 647.5 pence and Legal & General Group Plc declined 3.5 percent to 110.5 pence.

Homeserve sank 28 percent to 350 pence on the broader All- Share Index after the company suspended all telephone sales operations and marketing. An internal review found cases where sales processes failed to meet company standards. The company said it is holding regular talks with the Financial Services Authority.

JJB Sports Plc dropped 19 percent to 11.5 pence after the sporting goods retailer warned if weak trading continues, its full-year loss will exceed forecast. Trading worsened in the second half of September and didn’t improve in October.

Mondi Group fell 2.7 percent to 475 pence as Europe’s largest maker of office paper reported a 22 percent drop in underlying operating profit in the second quarter to 136 million pounds. The company said economic uncertainties had led to slowing demand and “moderately” lower sales prices.

--Editors: Srinivasan Sivabalan, Peter Branton

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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