FBS: FTSE sags 2.9%; commodities hit by recession fears
LONDON, Oct 22 (Reuters) - Britain's FTSE 100 slid 2.9 percent by midday on Wednesday, as recession fears hit heavyweight commodity stocks and banks, with investors worrying about metal demand and more soured loans.
By 1029 GMT, the FTSE 100 was down 122.47 points at 4,107.26, after losing 1.2 percent on Tuesday to snap a two-session recovery run. The UK benchmark is down 36 percent for the year.
Energy stocks fell along with lower crude prices, which traded below $70 a barrel, on growing fears that output cuts by producer group OPEC will not be enough to offset weakening energy demand from leading consumers.
BP sank 3.6 percent, Royal Dutch Shell sagged 3 percent, Cairn Energy lost 2.3 percent and Tullow Oil dropped 3.1 percent.
Weaker metal prices also weighed on mining stocks, with BHP Billiton, Rio Tinto, Xstrata, Antofagasta, Anglo American, Vedanta Resources and Kazakhmys falling 4.9 to 11.8 percent.
BHP warned that Chinese demand was set to weaken, but the company showed little sign of trimming production, lifting quarterly iron ore output by 15 percent.
U.S. stocks dropped on Tuesday after a flurry of disappointing earnings and as commodity-related shares sank on fears of a global recession. In Asia, Japan's Nikkei average tumbled 6.8 percent to its lowest close in a week.
Bank of England Governor Mervyn King said in a speech on Tuesday night that Britain's economy was probably entering its first recession in 16 years, and the outlook has not worsened as rapidly as it has in the past month for a very long time.
'Each day that comes along brings yet another reality check of what we have to face. It's going to be tough,' said Howard Wheeldon, senior strategist at BGC Partners.
'Will we return to the lows? No. We will bounce around. Volatility will remain. The worse may be over but the cure is long way off.'
The Bank of England minutes showed all nine Monetary Policy Committee members voted for this month's globally co-ordinated 50 basis point emergency cut in interest rates.
Banks were among the standout losers on the FTSE 100. Barclays, Royal Bank of Scotland, HBOS , Lloyds TSB, HSBC and Standard Chartered dropped between 0.5 and 9.2 percent.
BANKS NEED MORE HELP?
INVESCO Asset Management chief group economist John Greenwood said banks would face more losses as the recession began to bite and governments would have to come up with more bailouts.
'The scale of the problem is so large that we should regard the (Henry) Paulson plan, the (Alistair) Darling plan in the UK and other bank bailout plans as really just round one in what would be a likely multi-round effort to stabilise the banking system,' he said.
'So far the losses that we have seen on the books of the banks are largely due to mortgage securities. So far we have not seen the losses due to the recession,' he said. 'Those losses are still to come. That may seriously impact bank balance sheets and may require further recapitalisation measures.'
Retailers were also down amid the gloomy economic outlook. Marks & Spencer, Next and Kingfisher were off between 2.3 and 7.7 percent.
BSkyB, Smiths Group and Whitbread also fell after going ex-dividend.
Hedge fund Man Group, however, advanced 2.2 percent after it said the net asset value of its main AHL fund rose 1.9 percent last week.
Building materials distributor Wolseley and builders were also firmer as traders cited hopes that the UK may further cut interest rates next month. Wolseley added 0.9 percent, while mid-caps Barratt Developments, Taylor Wimpey and Persimmon gained 5.1 to 10.2 percent.
