Restructure fears hit RBS shares

FTSE 100 was 63.3 points lower at 5041.2

Fears over Royal Bank of Scotland's plans to sell parts of its business to appease European concerns sent its shares tumbling ahead of a bank restructure announcement.

The part-nationalised group fell 8% as investors braced themselves for the results of tense negotiations with the European Commission on remedies for receiving state aid.

RBS was hit after it said it would have to offload greater-than-expected chunks of its business, although the wider market was in positive territory, ahead 60 points at 5105.

A 1% rise in early trading on the Dow Jones Industrial Average on Wall Street helped sentiment on the London market, as it clawed back hefty losses. London's rise was also helped by better than expected manufacturing data that showed output at its highest level for almost two years last month. The figures were echoed in a similar report for Eurozone indicating that the sector expanded for the first time in a year and a half. But RBS was the stock in focus after it said it would have to make sales "not initially contemplated".

The bank - 70% taxpayer owned - has come up against European competition rules and is expected to have to sell off parts of its investment bank and its Churchill insurance arm as well as over 300 branches in England. Shares in RBS dropped 3.27p to 38.65p. Lloyds Banking Group - thought to be on the verge of a deal over fundraising plans to evade a taxpayer-backed insurance scheme for toxic assets - also took a tumble. Shares in the Government-supported bank lost 2.03p to 85p, or 2%.

Market speculation of revived bid interest in Rio Tinto from BHP Billiton helped give the mining sector a boost. Rio added 120p to 2813p, although the Footsie's top riser was Randgold Resources - 236p ahead at 4196p.

In the FTSE 250, directories group Yell said enough lenders had approved its plans to restructure its £3.8 billion debt mountain. Shares in the Yellow Pages owner cheered 3%, or 1.52p to close at 49.73p - after rising 13% earlier - as it said it would now press on with plans to raise at least £500 million.

Budget airline easyJet was meanwhile down 3.6p at 363.7p after rival Ryanair announced a big jump in profits thanks to lower fuel prices, but said it would be loss-making in the second half of its financial year.

Back in the top flight, British Airways was down 1.9p to 179.9p ahead of heavy first-half losses expected on Friday and amid a continuing disagreement with unions over its staffing plans.

The biggest Footsie risers were Randgold Resources up 236p at 4196p, Eurasian Natural Resources ahead 45.5p at 879p, Vedanta Resources up 104p at 2197p and Lonmin up 72p at 1535p. The biggest Footsie fallers were Royal Bank of Scotland down 3.27p at 38.65p, Hammerson down 14p at 392.2p, Segro off 11p at 342p and Liberty International down 12.5p at 438.6p.