Royal Bank of Scotland, Lloyds TSB, HBOS all fall sharply
LONDON (MarketWatch) -- London's FTSE 100 index touched a four-year low on Monday, with banks and miners dropping sharply as investors fretted that moves on this side of the Atlantic to support the financial sector won't be enough to prevent a recession next year.
The U.K. FTSE 100 index fell 6.1% to 4,677.23, a drop of 302.02 points. It traded as low as 4,670.89 at one stage, a level not seen since late 2004.
Investors hoping that Europe would come up with a bailout package similar to a $700 billion U.S. rescue plan approved on Friday were disappointed after a Paris meeting of top EU leaders failed to put a pan-European plan in place. See full story.
"Europe's summit of European leaders produced a half hearted desire for global
cooperation . . . the approach is clearly fragmented," said UBS economist Paul Donovan.
Financials in Europe continued to struggle, with real estate finance firm Hypo Real Estate and Fortis bailed out over the weekend.
Financial-sector health fears spread to London-listed banks. Top decliners included Royal Bank of Scotland , down 20.2%, Lloyds TSB , down 9% and HBOS , down 16.2%.
The U.K. government recently brokered a takeover of HBOS by Lloyds TSB.
Other U.K. efforts to shore up the banking sector could include a plan that would call on U.K. taxpayers to recapitalize British banks, the Financial Times reported.
The measure would likely see taxpayers receive preferred share or warrants in troubled banks, which could pay significant dividends in the future, according to the report. See full story.
Growth forecasts cut
Meanwhile, UBS economists said that the ongoing financial turmoil and so far ineffective policy response means that they are cutting 2009 growth forecasts.
They now expect global growth at 2.2%, down from a previous estimate of 2.8%. The IMF considers a reading of 2.5% recessionary, they noted.
The U.K. has the worst growth prospects, the economists believe, forecasting a negative reading of 0.3% for the region.
"Negative growth is very rare, and it takes a special effort to achieve it. The Federal Reserve, the Bank of England and the European Central Bank are seen cutting rates significantly," they said.
Worries about lower growth usually hit commodity stocks and miners and oil companies sank in London.
Shares in Rio Tinto fell 12.8%, shares in Eurasian Natural Resources fell 22.1% and Kazakhmys shares declined 25.43%.
The losses came even as gold futures got a boost from safe haven buying, up $43.40 at $876.60 an ounce.
Oil producers fell as light sweet crude prices tumbled $3.76 to $90.20 a barrel.
Shares in Royal Dutch Shell fell 6.1% and shares in Tullow Oil dropped 12.2%.
Car sales also highlighted weaker consumer spending, with the Society of Motor Manufacturers reporting that new U.K. car registrations fell 21.2% to 330,295 units in September - usually a key month for car sales for registration reasons.
"The extreme weakness of car sales heightens the rapidly growing concern over the economy and boosts the case for the Bank of England to cut interest rates by 50 basis points to 4.50% on Thursday," said Howard Archer, economist at Global Insight.
Car retailer Pendragon fell 9.2% outside the top index.
Other consumer spending-sensitive stocks under pressure included homebuilders Taylor Wimpey , down 28.1%, and Barratt Developments, down 15.7%, also outside the top index.