LONDON (Reuters) - The FTSE 100 .FTSE fell 2.2 percent on Thursday to close in bear-market territory -- down 20 percent from a multi-year peak a year ago -- as oil and banks weighed on the index.
The FTSE 100 ended down 122.8 points at 5,406.8, reversing the previous session’s gains and shrugging off the Bank of England’s expected decision to hold rates unchanged, after gaining 1.6 percent on Wednesday.
The benchmark index has fallen 20 percent from the level of 6,754.1 on July 13, 2007 and has lost 16.3 percent so far this year.
“The equity markets are basically tanking on the back of declining earnings prospects, which in turn is a function of slowing economy both at home and aboard,” said Peter Dixon, UK economist at Commerzbank.
“Irrespective of what the Bank of England does, it is not going to lead to a major correction in the equity markets anytime soon. You can argue theoretically that a rate cut will give something of a lift ... but if the impact of falling earnings-growth estimates is faster than the pace of rate cuts, it’s not going to help.”
Heavyweight oil shares suffered as crude prices remained below recent record highs despite trading up to above $137 a barrel.
Midcap Bradford & Bingley BB.L, however, extended its recovery into a second day, up 4.6 percent on hopes a buyer could sweep up the troubled mortgage lender.
The Bank held interest rates at 5.0 percent as policymakers tussle with slower economic growth on the one hand and surging inflation on the other, but analysts said rates would have to fall eventually.
Thomas Cook TCG.L topped FTSE 100 losers, down 9.2 percent as concern over the macroeconomic outlook continued to take its toll on travel stocks. TUI Travel TT.L lost 4.9 percent.
Cadbury CBRY.L shed 7.5 percent after Merrill Lynch downgraded the confectionery group to “underperform” from “neutral”, traders said.
Among other top decliners, commercial broadcaster ITV (ITV.L) lost 6.7 percent after UBS analysts predicted a sharp deterioration in the TV advertising market in September.
Retailer Kingfisher (KGF.L) fell 5.3 percent after Goldman Sachs cut its price target and added the stock to its “conviction sell” list.
Credit information firm Experian (EXPN.L), on the other hand, was the top percentage gainer on the main index, up 7.9 percent, after it posted a 1 percent rise in first-quarter revenues as acquisitions helped it beat forecasts for a drop.
London Stock Exchange (LSE.L) slipped 3.6 percent, paring some of its 10 percent gain on Wednesday, when it said first-quarter revenue rose 8 percent to 178 million pounds.
Among midcaps, F&C Asset Management FCAM.L plummeted more than 28 percent to 97.55 pence after Kaupthing said it had placed 95 million shares in the fund manager at 100 pence each.
Barratt Developments (BDEV.L) surged 24 percent after the housebuilder said it would cut 1,200 jobs to cope with the downturn in the housing market and would not pay a final dividend for 2007-08.
Rival builder Taylor Wimpey (TW.L) climbed 15.7 percent.
“The ‘split’ in returns between those countries where central banks have cut rates (the U.S. and the UK) and those that are still raising rates or would like to (eurozone and Japan) can be expected to become starker,” Blue Sky Asset Management said in a note.
“This should keep the focus on searching for value or defensives themes in the UK and the U.S. for now, with our now well worn critical pointer being that a recovery in financials in these two markets should serve as a useful barometer of when the tide is turning.”
Additional reporting by Michael Taylor and Atul Prakash; Editing by Quentin Bryar