Shares drop again as banks meet

Mar 21 2008 by Bill Gleeson, Liverpool Daily Post

BLUE chip stocks continued their descent into the red yesterday as the recent swirl of rumours drew accusations of market abuse in the City.

Britain’s biggest lender, Halifax Bank of Scotland (HBOS) – which dropped as much as 20% at one stage yesterday – made tentative gains as moves made by bosses to quash “malicious” rumours eased investor nerves.

But turbulence in financial markets shows no sign of abating and the FTSE 100 index was in negative territory after heavy falls on Wall Street late on Wednesday.

The FTSE 100 index at the close was down 50.4 at 5495.2.

The bosses of Britain’s major banks met Bank of England Governor Mervyn King yesterday as the credit crunch tightened further.

The meeting came after the Bank was forced to make an unprecedented move and deny City rumours that HBOS had turned to it for emergency funding.

In the end, the Bank of England issued a statement saying that the banking industry had agreed to remain vigilant and keep markets orderly

The Financial Services Authority (FSA) meanwhile launched an inquiry into possible market abuses, accusing traders of spreading false rumours and dealing off the back of them.

Traders are thought to have made millions of pounds by circulating false speculation surrounding some of the UK's biggest companies.

Sally Dewar, managing director for wholesale and institutional markets at the FSA, said: “We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them”.

Rival banks to HBOS were suffering losses as fears over the impact of the credit crunch failed to budge.

Barclays was down 1%, as was Alliance & Leicester.

Mining groups were also losing ground after commodity prices dropped over concerns about the US economy.

Markets have been rocked by volatility over the past week, with the cut-price rescue of US investment bank Bear Stearns sending the FTSE 100 plummeting by 3.9% on Monday.

Claire Collingwood, trader at CMC Markets, said: “There’s still a lot of uncertainty as to where fair value now lies for equities and, with volumes thinning out ahead of the long weekend break, this resulting volatility is likely to be sustained at least in the short term.”