FTSE loses 0 7 despite strong demand at French bond auction

The FTSE 100 lost 0.8% on Thursday as traders continued to downsize positions in riskier stocks despite a large French bond auction seeing strong demand.

By late morning financials and mining firms were the key drags on the FTSE 100, as weakness in European banks continued amidst concerns over exposure to sovereign debt and fears that capital raising efforts may see weak demand, forcing asset sales.

The French bond auction progressed relatively smoothly, with the country able to raise €7.96 billion, close to the €8 billion maximum aimed, with strong demand helping to show that fears of a potential loss of the country’s top notch credit rating may not be as entrenched in the market as headlines suggest. That said, a move higher in the yields demanded does show deterioration in sentiment, heightened by exposures to sovereign debt by key French banks.

Euro continues to trade bearishly
The euro saw yet more strong weakness against both the pound sterling and the US dollar, where it hit a new 16-month low of $1.2828. It’s a significant low for the euro. Since May last year the single currency has been on a downward spiral seeing lower lows and lower highs, a strong bearish movement. The uncertainty over sovereign debt situation remains, alongside fears that key nations such as France could soon lose its Triple ‘A’ credit rating is a constant drag on the euro’s prospects. We are now at levels whereby the euro must find some support soon or 1.26 could be achieved sooner rather than later and a break below 1.20 could become a real possibility.

London risers and fallers
In London trade, chip maker ARM Holdings was the top gainer, with the firm’s share prices rising over 3% after investment bank UBS placed a short term ‘buy’ signal on the firm’s shares. The bank said that it expects the company’s fourth quarter results, due out on January 31, to beat expectations. ICAP shares were the worst performers, losing 3% after the inter-dealer broker peer Tullett Prebon warned of a difficult trading environment and UBS issued a cautious note on the sector in general.