London shares lost ground on Monday on news that Cyprus, home to around 100,000 British people, plans to tax bank deposits as part of a controversial international bailout.
The benchmark FTSE 100 index closed 31.73 points or 0.49 percent lower at 6,457.92 points, though well above its intra-day low of 6,386.17.
“The FTSE 100 has been dragged lower during today?s session as turmoil surrounding the unprecedented bank tax in Cyprus grows,” said Max Cohen, a sales trader at Spreadex, noting: “Banking shares have been hit particularly hard.”
“The levy, which has yet to be approved by the Cypriot parliament, is the first of its kind in the euro zone, although market fears of contagion remained in check as investors were of the view the tax was unlikely to be applied in larger countries,” he said.
Looking ahead to Wednesday’s UK budget, Cohen said: “Despite increasing calls for a review on policy, chancellor George Osborne is set to announce that his Conservative party intends to stick to austerity.
“Monetary policy may garner most of the attention amid signs that he plans tweak the Bank of England’s inflation-fighting remit to spur an economy once again threatened with recession,” the Spreadex trader said.
“Osborne said on Sunday there was no alternative to austerity, and that slowing deficit reduction would put Britain at risk of the same fate as Cyprus,” he noted.
Barclays lost 4.41 percent to 305.95 pence and state-rescued Royal Bank of Scotland sank 3.44 percent to 297.30 pence, though HSBC managed to edge up a tenth of a penny to 720.20 pence in the light of a Financial Times report that the megabank may cut up to 5,000 more jobs.
Kazakhstan centred mining group ENRC plunged 7.18 percent to 321.90 pence as investors took fright at analysts’ forecasts for the company’s 2012 results on Wednesday.
The gloom spread to other miners focussed on the former Soviet region, with Kazakhmys dropping 6.13 percent to 505.50 pence and Polymetal falling 3.88 percent to 880.50 pence.
However, the major talking point on the London market was a weekend press report that the Qatar Investment Authority is preparing an £8 bn bid for High Street retailer Marks & Spencer, whose shares soared 6.87 percent to 398.10 pence.
The Gulf state’s sovereign wealth fund has approached leading banks and private equity houses ahead of a potential move on the iconic chain, the Sunday Times cited senior sources in London’s financial industry as saying.
M&S, which sells clothes, food and homeware, was founded in 1884 and was once one of the world’s most profitable retailing company.
British no-frills airline easyJet on Monday rejoined the FTSE 100 index on Monday but its share price eased 0.56 percent to 1,066 pence amid the broader market fears about Cyprus, one of the airline’s leading destinations.
EasyJet, which has enjoyed booming demand for its low-cost Europe-wide fares despite economic strains, has won promotion from London’s second-tier FTSE 250, and now rubs shoulders with IAG — parent of British Airways and Spanish carrier Iberia.
Meanwhile, on the currency markets, sterling eased to $1.5113 at 4:49 pm from $1.5125 late on Friday but strengthened to 1.1646 euros from 1.1581 euros before the weekend.
London shares close lower on Cyprus bailout woes
