FTSE week in review: Lurching between losses and gains

Mar 21 2008

The UK’s biggest companies suffered their latest bout of turbulence this week as fears over the credit crunch loomed large over global markets.

The FTSE 100 Index lurched between losses and gains and nervous investors were spooked by the rescue and cut-price sale of US investment bank Bear Stearns and false rumours of funding problems at the UK’s biggest mortgage lender, Halifax Bank of Scotland. The Bank of England moved to pump billions into frozen money markets.

After a trading week shortened by the Easter break, the FTSE 100 Index eventually finished 136.5 points lower at 5495.2, or 2.5%.

Monday:

The cut-price sale of credit crunch victim Bear Stearns and a rare Sunday move from the US Federal Reserve to lower the rate at which it lends to banks sends the Footsie plunging on Monday on fresh liquidity fears.

Traders unnerved by the speed at which Bear Stearns’ funding unravelled send the markets into freefall heading for the exit, while the Bank of England pumps £5 billion extra into short term money markets in a bid to bring rates down.

The Footsie drops nearly 4% to its lowest level for more than two years, wiping £51 billion from the value of the UK’s biggest companies.

Tuesday:

After the fall, the recovery. Expectations of more interest rate cuts from the Fed fuel gains throughout the day as investors hunting bargains also enter the fray.

The Footsie soared 3.5% - clawing back almost all of the previous day’s losses - before the Fed duly delivers with a 0.75% cut, its sixth move to lower rates since the credit crisis erupted last summer.

Although some market watchers had hoped for a 1% move, the Fed’s action and better than expected results from two other investment banks sent the Dow to its biggest one-day gain in more than five years.

Wednesday:

On a dramatic day of trading, HBOS is targeted by short-sellers as rumours of a funding problem for the bank spread through the City.

The rumours send the bank’s share price tumbling almost 20% at one stage before the Bank of England makes an unprecedented intervention to deny the rumours, which HBOS labelled “malicious”.

The Financial Services Authority also launches an investigation into the rogue trading and issues an explicit warning against the spread of false rumours on a day when the Footsie slips back into negative territory, 1% lower.

Thursday:

The Bank of England makes its second move in three days to pump extra cash into the money markets on a day when its officials meet bank chiefs.

An extra £5 billion is pumped into the system and extra liquidity for cash-starved financial institutions is also offered by the European Central Bank.

Although HBOS recovers ground after the sell-off of the previous day, finishing 6% higher, the wider Footsie closes 0.9% down.