FTSE close: Stocks recover on Dubai doubts

By Adrian Lowery
Updated: 12:01 EDT, 27 November 2009

Fears over a financial crisis in Dubai continued to spook UK traders today but the Footsie recovered after initial falls.

After Asian markets took a fright overnight with falls of 3% and 5% in Japan and Hong Kong, the FTSE 100 index opened sharply down but recovered throughout the day to close 51.6 points up at 5,245.7.

The Footsie tumbled 3% yesterday - its biggest drop in eight months. Markets panicked after Dubai World, the emirate's main development engine, said it was asking creditors to delay paying back its $60bn (£36.8bn) debt.

'It's absolute paranoia. This is the last thing the market needed in the run up to Christmas,' said Manus Cranny, head of sales at MF Global. 'It's not just the Dubai debt, investors are wondering what other black holes there are and what the ramifications are for global companies.'

The US was closed for the Thanksgiving holiday yesterday but also looks set to slide when Wall Street trading resumes later today, taking the Dow Jones Industrial Average down as much as 3%.

Gold took its biggest one-day fall in a year and oil was down 5%. Bullion, which hit a new record of $1,195 an ounce yesterday, slumped from around $1,192 at midnight to $1,138 within a couple of hours. Traders blamed the sharp overnight recovery in the dollar.

Mining stocks came under heavy pressure as investors looked for safer havens, although the sector was back in favour today after oil prices steadied at around 74 US dollars a barrel. Xstrata led the risers board with a gain of 50p to 1072p, while Rio Tinto added 95p to 3089.5p.

Banks were pressured as concerns over the foundations of the global financial system returned to the fore. Standard Chartered was 6p up at 1,520p. The Asia-focused bank has racked up commitments of around £7.5bn in the United Arab Emirates, or 7% of its loan book, according to NCB Stockbrokers.

HSBC has around £9.6bn of exposure to the UAE, representing 2% of its loan book: its shares were 0.7p up at 706.3p.

Lloyds Banking Group shares were revalued to 58.6p today after the bank's shares traded ex-rights. But they were 3% up pro rata following overwhelming investor support for the bank's £13.5bn pound cash call.

Royal Bank of Scotland added 1.73p to 34.73p after a sharp slide the previous session.

Luxury goods group Burberry was among the top gainers, up 9.5p to 572.5p after Goldman Sachs upgraded its stance on the company to 'neutral' from 'sell' in a review of the luxury goods sector.

Other retailers were less happy after Goldman Sachs struck a sour note on bog-standard High Street chains. Goldman downgraded DSG, off 0.5p to 36.5p, Kesa, 2.1p lower at 154.8p, and Home Retail, down 2.2p to 298.4p, to 'sell' and cut its rating on Next, off 22p to 1982p, to 'neutral'.

Elsewhere, TalkTalk owner Carphone Warehouse rose 2.4p to 194.7p after it posted an 88% rise in pre-tax profits to £75m and said it expected the strong showing to continue into the second half.

In the FTSE 250 index, Comet owner Kesa Electricals was 2.1p down at 154.8p.

Meanwhile, school trips and camping firm Holidaybreak rose 4.9% - up 12.25p to 260p - after it reported a 13% fall in annual profits but said recent trading had been steady.