FTSE slides as US bank restrictions spark sell-off

Looming restrictions on the risk-taking and size of banks led to a sell-off among financial stocks, despite a bumper 8.3bn annual profits announcement from Goldman Sachs.

The Footsie followed Wednesday's two per cent fall with a further 1.6 per cent decline yesterday, losing 85.70 points to 5335.10, as traders also fretted over a bigger than expected rise in initial unemployment claims in the United States. Wall Street's Dow Jones Industrial Average fell more than two per cent in early trading.

Meanwhile, China's bigger-than-expected 8.7 per cent growth in gross domestic product last year fuelled fears over a slowdown as policymakers shift towards controlling inflation.

Investors were tempted into more defensive shares amid uncertain trading conditions, while a rally for the dollar sent sterling down to 1.61 against the currency. Against the euro, the pound held at around 1.15 as worries over Greece's debt position lingered.

United Utilities added 161/2p to 525p – more than three per cent – as the company introduced a smaller-than-feared dividend cut in response to a tough settlement from regulator Ofwat.

Severn Trent was also on the front foot, adding 20p to 1147p, while International Power was 7.7p dearer at 319.7p despite dispelling takeover talk earlier in the week.

British Airways was the leading Footsie riser after low-cost rival EasyJet said key performance measures were either better than last year or ahead of expectations. BA shares rose 7.3p to 2091/2p, while in the FTSE 250 Index EasyJet lifted 18.8p to close at 383.8p.

EasyJet chief executive Andy Harrison said: "Economic conditions remain challenging and we continue to expect a tough trading environment.

"However, the underlying performance of the business in the first quarter has been encouraging and EasyJet remains on track to deliver substantial profit improvement during 2010."

Wyn Ellis, an analyst at Numis Securities, described the update as encouraging.

Among banking stocks, Barclays fell 17.85p to 283p, as its chairman warned of a "tsunami" of regulatory pressure on the sector. Brokers at Credit Suisse also cut their target price on the stock on Wednesday.

Royal Bank of Scotland was the Footsie's leading faller, off seven per cent or 2.68p at 35.32p, while Lloyds Banking Group fell 3.2p to 53.3p.

Bradford-based supermarket chain Morrisons was off 31/2p at 295.3p after sales growth over Christmas surpassed rivals but underwhelmed investors. Rival Tesco fell 4.75p to 421p, while Sainsbury's was 1.8p lower at 330p.

Broadcaster BSkyB was in the red after it lost its challenge at the Court of Appeal over the Government's decision to force it to reduce its 17.9 per cent stake in ITV. Shares edged 4p lower to 560p after the verdict, with ITV ticking 0.3p up to 58.15p.

The second tier was dominated by pub firms after Enterprise Inns issued a trading update suggesting some encouraging trends for the industry.

Enterprise shares jumped almost 20 per cent or 18.6p to 1131/2p and rival Punch Taverns added 6.6p to stand at 81.05p, a gain of nearly nine per cent.

The biggest Footsie risers were BA up 7.3p at 2091/2p, United Utilities up 161/2p at 525p, International Power up 7.7p at 319.7p and Reed Elsevier which added 10p to close at 5201/2p.

The biggest Footsie fallers were RBS down 2.68p at 35.32p, Fresnillo down 48p to 728p, Anglo American off 163p at 2488p and Kazakhmys which closed the day 82p lower at 1280p.