Dubai jitters sent stock markets tumbling on Tuesday as Moody’s downgraded several issuers exposed to the region and raised concerns about the strength of the UK’s rating. Royal Bank of Scotland, which is understood to be the UK bank most exposed to Dubai World’s debt issues, fell enough to prompt a temporary suspension of trading on the UK benchmark index.
The FTSE 100 index dropped 87.5 points or 1.7%, giving up the 5,300-point resistance level that it had held on to for the past week, to close at 5,223.1. The FTSE 250 index fell 129.1 points or 1.4% to 9,044.1.
A Moody’s report today described the ‘Aaa’ ratings held by the UK and the US as “resilient” as opposed to “resistant,” which is the description associated with top rated peers Canada, France and Germany. The value of sterling dropped against most currencies in response to the report.
Moody’s also cut the ratings of six Dubai-related issues companies, while fellow investment ratings firm Fitch downgraded Greece to BBB+.
Shares in Royal Bank of Scotland extended recent losses to lead the FTSE 100 losers, having dropped more than 10% in earlier deals, largely on the back of concerns over its exposure to Dubai but also hit by talk board members could resign over the government’s plans to curb salary bonus payments.
The RBS stock settled 7.7% lower on Tuesday, having slipped 4.7% in the previous session and also seen its ADRs lose ground in US deals overnight. The bank, which is soon to become 84% owned by the UK government, is reportedly among five other creditors preparing to hold talks with Dubai World before Christmas.
Banks Standard Chartered, Barclays and HSBC, all of which are purported to be on the list, each shed 2.5%-3.7%.
Elsewhere, British supermarkets experienced losses after industry leader Tesco reported lower-than-hoped-for quarterly sales, heightening concerns over retailer’s prospects of a strong Christmas shopping season. Tesco shares lost 2.3%, followed by Next, Sainsbury, and Marks & Spencer, which each eased between 1.2% and 2.0% lower, while mid-cap peers DSG International, HMV and Debenhams fell back 4.8%-5.5%.
Resources stocks continued to feel the pressure as commodity prices retreated further from recent highs. Mining groups Lonmin, Xstrata and Fresnillo and oil producers Cairn Energy, Royal Dutch Shell and BP each saw between 1.1% and 3.9% shaved off their market value. Trading in Xstrata shares was also hampered by news the miner is set to swallow a $1.9 billion restructuring charge and $545 million write-down in relation to its nickel and copper businesses.
Of the 12 blue-chip plays that managed to make headway on Tuesday, Pearson was the top performer, 1.1% higher, and WPP also achieved moderate gains, 0.2% ahead, after advertising market forecasters raised their prospects for 2010.
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