Rise in crude oil price fuels FTSE decline

2011-02-24 13:07

London - Britain's top shares fell on Thursday, with Royal Bank of Scotland and British American Tobacco pressured after their results and investors worried about global recovery as the oil price continued its ascent.

By 0924 GMT, the FTSE 100 was down 33.40 points, or 0.6%, at 5 890.13, after sinking 1.2% on Wednesday to its lowest close since January 31.

Brent crude surged to its highest price since August 2008 on concern the bloody unrest that has cut more than a quarter of OPEC member Libya's output could spread to other producers, including top exporter Saudi Arabia.

"Libya still seems to be the driving force behind the market," Keith Bowman, an analyst at Hargreaves Lansdown, said.

"The increase in the oil price that we've had over successive days now is starting to cast quite a long shadow over the market and general economic prospects."

Risk-sensitive banks, down sharply this week as investors have looked uneasily at the unrest in the Middle East and North Africa, extended their falls.

RBS came off worst, down 2.2%, as its results were met with disappointment.

Bad debts from Ireland and an uninspiring investment banking performance put pressure on the shares, traders said, adding some investors will steer clear of the stock with no return to a payment of the dividend in sight.

Tobacco drags

Cigarette firms were out of favour, with British American Tobacco among the biggest blue-chip fallers, shedding 2.3%, after the maker of Kent, Dunhill, Lucky Strike and Pall Mall cigarettes reported full-year results.

"(The numbers) all looked in line, the dividend was slighter better than expected and (it announced) a £750m buyback but the market expected £1bn so that was a little disappointing," Alwyn Phillips, a trader at IG Index, said.

Capita was the star FTSE 100 performer, up 5.5%, as investors cheered the outsourcing group's full-year results, prompting broker Peel Hunt to repeat its "buy" rating.

"Capita has been going through a hiatus in terms of contract wins, but we see this picking up in second-half 2011," Peel Hunt said in a note.

"(We expect) the valuation (to) revert from the current, historically low level to at least the high-teens price earnings that a company of this quality deserves."

The FTSE 100 volatility index, a barometer of investor anxiety, firmed more than 6 percent on Thursday, notching up a near-45 percent rise this week, on track for its biggest weekly gain since October 2008.

The higher the index, the lower investors' appetite for risky assets such as stocks.