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FTSE 100 falls below 5000 as Eurozone debt worries increase

The rally has proved shortlived with leading shares heading south once more, and slumping below the 5000 level for the first time since August.

The FTSE 100 is down 73.03 points at 4968.58 and if it closes below 5000 it will be the first time since July 2010. After Thursday’s rout on the prospect of a global economic downturn, the specific trigger now seems to be Europe once more.

The European Commission is saying there is no Europe wide plan for recapitalising banks – not what the market wanted to hear, while Germany is still apparently holding out against a Euro bond.

So Germany’s Dax and France’s Cac are down around 1.5% while the Italian market is off more than 1%.

UK banks have gone into reverse, with Barclays down 1.8p at 137.05p and Lloyds Banking Group off 0.56p at 31.95p. Analysts at Credit Suisse have crunched the numbers for the effect of a disorderly break-up of the Eurozone on the banks:

Losses to core European banks would be around €300bn, €630bn to peripheral banks ex Italy and €150bn to the ECB. Peripheral European banks’ net foreign liabilities should rise by around €800bn.

We think the chance of a general break-up of the Euro is just 10%: the cost of not bailing out the peripheral countries is higher than the cost of bailing them out. We think Greece is unlikely to be ejected from the Euro until the ring-fencing for the rest of the periphery has been set up. The biggest danger in our view would be for Italy to choose to leave the euro.

Miners are also under pressure again as commodity prices drop on [lack of] demand worries. Kazakhmys is down 67.5p at 779p while Xstrata is off 64.5p at 785p. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds