FTSE skids as credit woes hit banks

A general view of the London Stock Exchange in the City of London December 12, 2006.

LONDON (Reuters) - The leading share index skidded 2.7 percent on Monday, suffering its biggest one-day fall since mid-August, as investors in financial stocks around the globe took fright after Citigroup (C.N) was downgraded.

The FTSE 100 .FTSE ended down 170.4 points at 6,120.8, as shares plunged on major indexes across Europe and on Wall Street.

The benchmark index had its biggest one-day fall since August 16, when it fell more than 4 percent on credit fears in a world sell-off that was followed the next day by a surprise discount rate cut from the U.S. Federal Reserve.

Embattled lender Northern Rock NRK.L was the day's worst casualty, losing 21.4 percent and touching a new low after the bank said interest from potential suitors valued it at "materially" below Friday's share price.

The treasury said it may offer financial help to potential rescuers of the bank, even though this would need to be approved by the European Union, as it emerged proposals put forward so far were pitched low.

Across the Atlantic, Goldman Sachs cut Citigroup to "sell" and said the bank may have to write off $15 billion (7.3 billion pounds) over the next two quarters as mortgage losses reduce earnings.

"The implications of the subprime crisis are beginning to make themselves felt very heavily on certain areas of the market," said Peter Dixon, an economist at Commerzbank.

"That is, in my view, going to impact upon areas of the economy," he added. "The U.S. is going to skirt with recession in 2008."

Further aggravating credit jitters, reinsurer Swiss Re RUKN.VX became the latest financial institution to unveil a huge hit from the crisis in the subprime mortgage market, reporting a 1.2 billion Swiss franc (524 million pounds) writedown.

Royal Bank of Scotland (RBS.L) dropped 5.3 percent.

Alliance & Leicester ALLL.L fell 4.2 percent after saying it continued to raise the funds it required successfully and saw no reason why its shares had fallen to a seven-year low.

STANCHART BUCKS TREND

But bucking the trend, Asia-focused Standard Chartered (STAN.L) rose 0.9 percent after the Financial Times said China's three leading banks have approached Singapore's state investment agency, Temasek TEM.UL, to discuss the possible acquisition of its 17 percent stake in StanChart.

Sliding metal prices and wider economic growth concerns exerted downward pressure on the mining sector.

Lonmin (LMI.L) and Antofagasta (ANTO.L) both tumbled 7.7 percent, while Anglo American (AAL.L) and Xstrata (XTA.L) both dropped 7.3 percent.

BHP Billiton (BLT.L) lost 5.2 percent. Its Chief Executive, Marius Kloppers, told investors the firm will not add a cash sweetener to a proposed all-share takeover bid for mining rival Rio Tinto (RIO.L), a South African BHP shareholder said.

Housebuilder Barratt Developments (BDEV.L) shed 4.9 percent after it kept its first-half outlook and said the housing market had tightened as anticipated due to higher interest rates and financial market turmoil.

Other stocks in the sector also skidded.

The mood was further dampened after a survey by property Web site Rightmove showed house price inflation in England and Wales dropped to 7.9 percent year-on-year in the month to November 10 from 10.4 percent the previous month.

Kingfisher (KGF.L) dropped 7.7 percent after JP Morgan cut its price target to 235 pence from 256 pence with an "overweight" rating.

(Additional reporting by Michael Taylor; editing by Paul Bolding)