London midday: Stocks weighed down by euro fears

17th Nov 2011 12:03

The Footsie was trading nearly 2% lower by midday, with early high riser Glencore even falling into the red, as concerns over the Eurozone continue to dampen market sentiment.SKY-HIGH YIELDS; CITI WARNS OF DEFAULT RISKSMarkets turned sharply lower after the results of Spain's latest debt auction came out. The Spanish Treasury issued €3.56bn in 10-year bonds at a yield of 6.975% compared to 5.433% in the prior 10-yr bond auction held on 20 October. Meanwhile, Italian 10-year government bond yields stood at around 7.02% at lunchtime, hitting a high of 7.15% earlier in the day.Meanwhile, Citigroup's chief economist, Willem Buiter, warned on Bloomberg TV that Europe has only weeks, if not days, to avoid a default in Spain or Italy. He is of the opinion that the European Central Bank ought to step into the market. "Time is running out fast," he said, "I think we have a couple of months -perhaps even weeks or days- before there a substantial risk arises of an unnecessary default in countries such as Spain or Italy, which would be a catastrophe and carry the European and US financial systems with them. So you need to act now." Ratings agency Fitch dropped a bombshell last night, warning US banks on their level of Eurozone exposure. "Though US banks have manageable direct exposures to the stressed European markets (Greece, Ireland, Italy, Portugal and Spain), further contagion poses a serious risk... Fitch believes that unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the US banking industry could worsen," the report said.Sales trader Ben Taylor from CMC Markets said: "The statement also highlights the fact that the derivatives exposures attached to euro debt holdings are not fully known and therefore the extent of counterparty risk are hard to quantify in the event of default."REXAM, NATIONAL GRID BUCK TREND, MINERS TUMBLEJust two stocks were making gains, one being packaging company Rexam after the firm assured that the second half performance was generally in line with expectations. The company also announced that its chairman would retire in February. The other riser was National Grid after reporting solid first half results which saw underlying profit before tax for the six months ended 30 September rose 2% to £953m from £938m. While this was below some market expectations, investors seemed pleased after the board approved an increase of 8% in the interim dividend.The heavyweight mining sector was leading the decline, however, with Vedanta Resources topping the fallers as copper prices fell lower. With the euro dropping to a five-week low against the dollar - on the back of the ongoing crises in the Eurozone, three-month copper on the London Metal Exchange fell to $7,615 a tonne in morning trade, down from $7,730 at yesterday's close. Gold and silver prices were also down. Xstrata, ENRC, Fresnillo, Antofagasta and Kazakhmys were all registering steep losses. Commodities trading and mining behemoth Glencore edged lower after a bright start, despite seeing production of copper rise 40% and gold (and equivalents) rocket 45% in the three months to the end of September. Imperial Tobacco, the manufacturer of Golden Virginia tobacco and Lambert & Butler cigarettes, has hit the "tobacco wall", according to Nomura, which has downgraded its rating on the stock from buy to reduce.Engineering and project management services firm AMEC fell despite saying that year-to-date trading was in line and despite macro-economic uncertainty, demand still remains strong.SABMiller was also out of favour after its first half results showed falling margin as raw material costs began to bite.Following its disappointing first half results, shares in Mothercare sank 10%, with Peel Hunt not helping much as it reiterated its sell rating on the stock. BCFTSE 100 - RisersRexam (REX) 331.10p +1.85%National Grid (NG.) 628.50p +0.32%FTSE 100 - FallersVedanta Resources (VED) 1,030.00p -5.42%Xstrata (XTA) 947.50p -5.01%Eurasian Natural Resources Corp. (ENRC) 652.50p -4.88%ITV (ITV) 63.80p -4.78%Inmarsat (ISAT) 436.60p -4.76%Fresnillo (FRES) 1,782.00p -4.65%Antofagasta (ANTO) 1,120.00p -4.60%Lloyds Banking Group (LLOY) 25.72p -4.53%Weir Group (WEIR) 1,826.00p -4.45%Kazakhmys (KAZ) 877.50p -4.10%