By Dominic Lau
LONDON, March 3 (Reuters) - Britain's leading share index
fell 1.85 percent by mid-session on Monday, led by banks and
commodity shares as investors fretted about a looming U.S.
recession and credit-related writedowns by financial firms.
HSBC <HSBA.L> bucked the weakness, up 0.8 percent after the
global banking group said its profit rose 10 percent last year,
as strong gains in Asia helped it absorb a $17.2 billion hit for
bad debts due to U.S. housing market problems. []
The bank's full-year dividend rose by 11 percent.
At 1116 GMT, the FTSE 100 <> was down 108.6 points at
5,775.7, on course for a four-day losing run. The UK benchmark
index lost nearly 9 percent in the first two months of the year.
European shares also fell sharply by midday.
U.S. stocks tumbled on Friday as another round of weak
economic data added to U.S. recession fears and a record loss at
insurer AIG <AIG.N> underscored worries about more writedowns in
the financial sector. In Asia, Japan's Nikkei average <>
fell 4.5 percent on Monday as the dollar hit a three-year low
against the yen.
"What it all means is that the Federal Reserve is going to
have to lower interest rates," said Mike Lenhoff, chief market
strategist at Brewin Dolphin. "The market's growing conviction
about a U.S. recession is really at the heart of it."
Futures now give a 74 percent chance the Fed will cut its
benchmark interest rate by a further 75 basis points at the U.S.
central bank's next rate-setting meeting on March 18.
Oil and gas producers were the top losing sector, shaving
more than 19 points off the index, as crude prices <CLc1> traded
below $102 a barrel.
BP <BP.L> shed 1.8 percent, while Royal Dutch Shell <RDSa.L>
lost 1.7 percent and gas producer BG Group <BG.L> dropped 1.3
percent.
Miners also suffered on concerns about global growth. BHP
Billiton <BLT.L>, Rio Tinto <RIO.L>, Anglo American <AAL.L>,
Kazakhmys <KAZ.L> and Lonmin <LMI.L> were down between 1.2 and
2.7 percent.
Xstrata <XTA.L> slipped 1.7 percent after its 13 percent
rise in annual net profit fell slightly short of market
forecasts, and it gave little detail about talks regarding a
possible takeover by Brazil's Vale <VALE5.SA>. []
WEAK BANKS
Banks were another standout loser, with Barclays <BARC.L>,
Royal Bank of Scotland <RBS.L>, HBOS <HBOS.L>, Lloyds TSB
<LLOY.L>, Alliance & Leicester <ALLL.L>, Bradford & Bingley
<BB.L> and Standard Chartered <STAN.L> each shedding between 2.1
and 6.3 percent.
Other financial stocks also fell. Hedge fund group Man Group
<EMG.L> lost 4.1 percent, while insurer Aviva <AV.L> fell 3.2
percent and Standard Life <SL.L> slipped 3.5 percent.
Pearson <PSON.L> was down 3 percent after it trimmed its
revenue growth outlook in some areas after announcing
above-forecast profits.
Defensive drugmakers were up, with GlaxoSmithKline <GSK.L>
adding 0.4 percent and Shire <SHP.L> gaining 0.1 percent.
Mid-cap Cobham <COB.L> advanced 2.9 percent after it said
its equipment had been selected for the U.S. Air Force tanker
programme. It said the total value to the company over the life
of the programme would be up to $1 billion.
European credit spreads widened on revived concerns about
bond insurers. The investment grade Markit iTraxx Europe index
was at 135 basis points, about 8 points wider from late Friday.
"The corporate news is not that bad," Lenhoff said.
"What we really have got here is the indiscriminate
degradation of the credit markets ... It's the credit market
victimising the equity market."
(Editing by Catherine Evans)
