By Dominic Lau
LONDON, Jan 28 (Reuters) - Britain's top share index had
slipped 2 percent by midday on Monday, led by banks and
commodity stocks, as persistent fears of a U.S. recession pulled
global equity markets lower.
At 1146 GMT, the FTSE 100 <> was down 122.7 points at
5,746.3. Britain's blue-chip index is down 11 percent so far
this month, on track for its biggest monthly percentage loss
since September 2002.
"All seems to be rattled again. Perhaps it's unsurprising,
given the seemingly baseless rally towards the end of last
week," said Tim Hughes, head of sales trading at IG Index.
"We are not going to know ... for a few weeks, for a few
months, whether recession is the next problem that we are going
to be dealing with, or if the ... (U.S.) fiscal stimulus package
and aggressive interest rate slashing are going to be
effective."
European shares were also sharply lower by mid-session. In
Asia, Japan's Nikkei average <> dropped nearly 4 percent on
worries that the U.S. economy was already dragging Japan into
recession.
Banks, which have borne the brunt of the turmoil in the
global credit market, were again battered, shaving 23 points off
the index.
Barclays <BARC.L>, Royal Bank of Scotland <RBS.L>, HSBC
<HSBA.L>, HBOS <HBOS.L>, Lloyds TSB <LLOY.L> and Standard
Chartered <STAN.L> lost between 1.7 and 3.4 percent.
Bank of England policymaker David Blanchflower said the
central bank needed to stop worrying about inflation and cut
interest rates to prevent a sharp slowdown in growth.
[]
A Reuters survey showed last week that all 58 economists
being polled expected the UK central bank to cut interest rates
by 25 basis points to 5.25 percent next month, following its
first cut for over two years in December.
"Despite the aggressive 75 basis points out-of-meeting rate
cut by the U.S. Federal Reserve and continued jitters in
financial markets, we would caution against counting on an
aggressive Bank of England rate cut," Morgan Stanley said in a
note.
"Unless it becomes clearer that a very sharp deterioration
in the UK economy is likely, then the three or four rate cuts
priced in by the market likely overstates the scale of further
monetary easing from the Bank of England."
Commodity shares also suffered on concerns that slowing
growth may restrict demand for raw materials. BP <BP.L> shed 3.4
percent, and Royal Dutch Shell <RDSa.L> dropped 3.2 percent.
In the mining sector, BHP Billiton <BLT.L>, Rio Tinto
<RIO.L>, Anglo American <AAL.L>, Kazakhmys <KAZ.L>, Lonmin
<LMI.L> and Vedanta Resources <VED.L> were all down between 2.6
and 6 percent.
Xstrata <XTA.L> gave up early gains to show a fall of 0.1
percent, still faring better than its sector, thanks to takeover
expectations. The Observer said on Sunday a bid from Brazilian
mining group Vale <VALE5.SA> could be announced as early as this
week, while the Financial Times said Vale was lining up
financing of about $50 billion.
The Anglo-Swiss miner also announced a 28 percent increase
in the total estimated mineral resource at the Collahuasi copper
mine in Chile.
Housebuilders fell, with Taylor Wimpey <TW.L> down 2.5
percent, and both Persimmon <PSN.L> and Wolseley <WOS.L>
shedding 4 percent.
(Editing by Will Waterman)
