UK Stocks : FTSE falls 6-month low

Weaker banks were the biggest drag on sentiment, reflecting exposure to euro zone debt as worries about Spanish banks and the country’s increasing financing costs were added to the political paralysis gripping Greece.

At the close, the FTSE 100 index was down 66.87 points, or 1.2 percent at 5,338.38, its lowest close since November 2011 and having hit an intra-day low of 5,309.75. Its losses for the week extended to 4.3 percent.

It’s the same old song… Banks, miners, oils lower on euro fears. U.S. economic releases were also disappointing. The flight to safety continues… More like any port in a storm given the problems the U.S. is facing going forward, said Mike Mason, Account Executive at Sucden Financial.

Investors were braced for more weeks of uncertainty in the euro zone, with a second parliamentary election in Greece scheduled for June 17 likely to increase prospects of the country quitting the single currency and the subsequent spillover into other countries, notably Spain.

Spain’s medium-term borrowing costs rose sharply on Thursday to around five percent in an auction of three and four-year bonds.

In Madrid, Bankia shares fell 14 percent, having lost as much as 30 percent earlier after Spain’s El Mundo newspaper said customers at the troubled lender had withdrawn more than 1 billion euros over the past week.

The Spanish government, which nationalised Bankia last week, denied the report.

Barclays was a big banking faller in London, down 3.9 percent, due to its relatively high exposure to Spain.

IAG was the biggest UK blue chip faller, down 6.0 percent, as investors also worried about its exposure to Spain, with the airlines group having taken over Iberia last year.

U.S. blue chips were 0.5 percent lower by London’s close, reflecting Europe’s woes and some weak U.S. economic data. A gauge of future U.S. economic activity fell for the first time in seven months in April and the Philadelphia Fed business conditions index hit its lowest since September, compounding worries about a faltering economic recovery.

GOLD SHINES

Precious metal miner Randgold Resource was the top FTSE 100 gainer, up 4.6 percent, as the price of gold – traditionally a safe-haven asset – rose more than 1 percent, bouncing off a 4-1/2 month low, on new physical buying.

Among other blue chip bright spots, interdealer broker ICAP added 1.6 percent, bolstered by a pair of broker upgrades following its full-year results on Wednesday, with UBS raising its stance to neutral, and Numis Securities upping its rating to buy on valuation grounds.

ICAP also said it is in talks to buy the stock exchange unit of PLUS Markets Group, in a move to pre-empt regulatory reforms to increase the use of exchanges.

And not all markets commentators were gloomy.

There is a growing feeling that equities and the euro are oversold now and could be due a bounce, said Fawad Razaqzada, Market Strategist at GFT Markets.

While investors will remain on their guard, especially with G8 meetings taking place tomorrow and Saturday, many will feel that the bad news from Europe is out in the open, for now.

Global leaders will get together at the U.S. presidential retreat of Camp David in Maryland on Friday and Saturday.