Market in spin as FTSE 100 falls

The FTSE 100 Index added 38.9 points to 5076.1 by mid-morning

The London market was sent into a spin as investor attention fell on financial stocks amid a fresh shake-up of the part-nationalised banks.

Lloyds Banking Group and Royal Bank of Scotland saw contrasting fortunes in the wake of announcements, with the former enjoying an almost 3% rise while the latter slumped nearly 7%.

The wider FTSE 100 Index was sent lower - below 5000 at one stage - amid falls across world markets, and closed down 67.3 points at 5037.2.

On Wall Street, investors were unnerved by concerns over unemployment and the stability of financial firms in Europe, sending the Dow Jones Industrial Average down 0.8% in early trade. In London, Lloyds bucked the trend for falls in the banking sector as weak results from Swiss bank UBS added further fuel to a downturn in sentiment.

Lloyds topped the sparsely populated risers board on the market by the end of the session after it announced a £13.5 billion rights issue as part of a £21 billion fundraising plan. The bank rose 2.33p to 87.33p as it said it would avoid the Government's toxic asset insurance scheme. But RBS led the fallers as it was confirmed the Government will raise its stake in the bank to 84%.

The bank lagged 2.72p at 35.93p after the Government confirmed plans to pump in an additional £25.5 billion as a result of the toxic debts scheme. Other banks were also under pressure. HSBC, which revealed plans to shed 1,700 jobs, slipped 22.5p at 667.5p. Asian-facing Standard Chartered was down 28p to 1495p, while Barclays slid 6.55p to 323.45p as it also announced details of a major restructuring to its management team.

Defence and engineering giant Rolls-Royce was also among the bigger fallers, losing 8.6p to 443.1p despite a steady-as-she-goes trading update in line with previous guidance. But chief executive Sir John Rose warned there was "no evidence yet of a sustained and general return to growth" across its markets.

In the FTSE 250 Index, budget stores group Dunelm jumped after it said like-for-like sales continued to run ahead of market expectations. The trading update prompted Numis Securities to raise its rating from add to buy and caused shares to cheer 20.8p to 346.8p. The retail stock stood at 120p at the start of this year.

Meanwhile, AB Foods slipped 12.5p to 820.5p after it announced full-year results showing profits ahead by 4% to £655 million. Analysts said the results from the Primark owner were in line with expectations, although cautious comments from the company resulted in some pressure on the stock.

The biggest Footsie risers were Lloyds Banking Group up 2.33p at 87.33p, Randgold Resources up 110p at 4306p, Legal & General ahead 0.9p to 78p and Cobham rose 1.8p to 222.4p. The biggest Footsie fallers were Royal Bank of Scotland down 2.72p at 35.93p, Schroders down 46p at 1059p, Thomas Cook Group down 7.8p at 193.1p and ICAP off 15.7p at 389.6p.