FTSE rally snapped by rising bond yields and fears over Greek election
BRITAIN’S top shares dropped yesterday, snapping a four-session rally, as rising bond yields for Italy and Spain and the latest poll results in Greece stoked fears about the Eurozone debt crisis, sapping investors’ risk appetite.
The FTSE 100 index closed down 93.86 points, or 1.7 per cent at 5,297.28, reversing much of the rally seen since last Thursday and putting it on course for a monthly drop of more than 7.5 per cent in May, its worst performance since August 2012.
Weak energy stocks and miners were the two biggest drags on the blue chip index, as the demand picture for commodities was hit by the Eurozone crisis and by fading hopes for stimulus measures from top metals consumer China.
Banks were also among the worst performers affected by Eurozone debt exposure concerns, with Royal Bank of Scotland down 3 per cent as JPMorgan Cazenove cut its target price to 25 pence in a cautious UK sector review.
Lloyds Banking Group shed 2.3 per cent as JPMorgan reduced its target to 30 pence from 40 pence, although it upgraded its rating to “neutral” on valuation grounds.
British banks ended off lows, however, as investors saw some cause for optimism after the European Commission said the Eurozone should move toward a banking union, consider eurobonds and the direct recapitalisation of banks from its permanent bailout fund as well as boost growth and cut debt.
Worryingly, the latest poll from Greece showed the radical leftist SYRIZA party has taken the lead over the pro-bailout conservatives ahead of next month’s election.