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FTSE 100 posts small decline as Bernanke rules out QE3 for now

Banks bore the biggest losses yesterday as Federal Reserve chairman Ben Bernanke dashed hopes that a third round of quantitative easing (QE) may be on the cards.

As the FTSE 100 declined by a negligible 1.1 points, to close at 5,129.92, Royal Bank of Scotland fell 5.2%, Lloyds Banking Group was down 4.1% and Barclays ended the day 1.8% lower.

The losses mean the FTSE 100 banks index has fallen by more than 60% since late July, when escalating concerns about the potential write-offs associated with the European sovereign debt crisis combined with rising fears about the global economy – both of which are bad news for the financial services sector.

By giving a clear signal that the Fed won’t take any immediate action to boost growth, the banks and the economy as a whole can expect to struggle for some time.

Glencore, the commodities trader and mining giant, fell 3.0% on concerns that a global slowdown would hit demand for raw materials.

AMEC, the oil services engineer, also declined 3% after Societe Generale downgraded the group from “buy” to “hold”.

T Clarke, meanwhile, tumbled by 21% after the specialist electrical contractor took an axe to its interim dividend, blaming the broader economic backdrop for its woes.

As pre-tax profits tumbled by more than half to £1.4m, the group dramatically cut its dividend from 4.25p to 1.0p and warned that the future looked challenging.

On the upside, car insurer Admiral Group jumped by 3%, after a two-day losing streak that marked its shares down by more than 10%. Admiral’s investors appeared to decide that perhaps the group had been punished enough over concerns that a likely ban on referral fees on personal injury claims and a rise in the group’s loss ratio.

Randgold Resources, the gold miner, increased by 1%, as the gold price increased by 4.1%.

The FTSE 100 declined to 5,014.79 points after Bernanke’s speech as investors worried the lack of immediate Fed action would plunge the economy into further difficulties. However, shares rallied in late afternoon as investors – who had already pushed shares down in the previous two days on the growing belief that Bernanke wouldn’t intervene – concluded that the Fed chairman’s passivity might be a good thing. A further round of QE might signal that Bernanke was panicked, while his lack of action suggests he may believe the economy is strong enough to look after itself.

The market appeared to be unaffected by the release of the Office for National Statistics second GDP estimate for the second quarter, which, as generally expected, reiterated that the British economy grew by 0.2% over the period. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds