Market Report: Contagion strikes fear into financial stocks

The FTSE 100 was rocked for a second day as the debt contagion gripped the European markets.

The City feared the blue chips index would sink beneath the 5,000 point barrier as the sovereign debt crisis in Greece looked set to spread to the rest of what traders charmingly refer to as the Pigs (Portugal, Ireland, Greece and Spain). The FTSE 100 flirted with the 4,000s but finally closed down 78.3 at 5,060.9.

The chaos on the Continent gave the financial sector a beating, with the banks extending their losses from the previous day. Lloyds Banking Group, now part-nationalised, was the biggest loser, giving up 2.9p to 48.3p. Its state-backed rival Royal Bank of Scotland retreated 19p to 32.2p.

The big oil companies have posted a series of disappointing updates this week. A day after Royal Dutch Shell's disappointing numbers, BG Group's shares dropped 42.5p to 1106p. While the group predicted a decade of high growth – of 6 to 8 per cent compound annual growth to 2020 – it revealed profits in the fourth quarter fell 38 per cent to £465m, on weakening gas prices. The shares slipped 37p to 1112p.

The worst performer was Icap, the interdealer broker run by the Tory party treasurer, Michael Spencer, as it delivered a nasty surprise to the market. The City trading firm warned that full-year profits would be between £295m and £315m, down from the £311m to £347m guidance in November. The stock has taken a hammering this year, partly because of plans by Barack Obama to limit proprietary trading by the US banks, and yesterday's update sent the shares down 17.8 per cent to 300p. Mr Spencer, who last month sold off £45m of Icap stock held in a family trust, said the regulatory uncertainty "has increased and the regular seasonal pattern of market activity has been affected" sending the shares down 71.1p to 294.4p.

Elsewhere in property, Bellway put out a trading statement for the six months to the end of January, which knocked 27.5p off the share price to 733p. The numbers showed that its average selling price had fallen, and the board expects trading conditions during the first half of 2010 "to be subdued relative to historic levels".

The falls were compounded by Charles Stanley, which put out a pretty negative view on the housebuilders. Analyst Tom Gidley-Kitchen wrote that there were "significant possibilities of a downturn in prices, and even an economic double dip, without a balancing upside scenario of strong and steady growth". He suggests jumping back in when prices are down 15 per cent. The worst of the day was Barratt Developments, down 9.8p to 113.7p.

The pious people on the trading floors saw the light yesterday and sold off Vedanta Resources. This followed the decision by the Church of England to announce in the morning that it was to ditch its stake in the miner "on ethical grounds". This was not the first time it has been sold off for such reasons – the Norwegian state pension fund sold its shares in 2007. Sentiment was already against the miners and Vedanta closed down 96p to 2319p.

Of the few risers, catering company Compass was the standout performer. The group, which caters for Chelsea FC, added 22.2p to 450p after it saw "strong growth in new business, both in food service and in our fast-growing support services business, and retention rates remain high".

BAE Systems made a late run into positive territory after it settled the corruption investigation with authorities in the US and UK. The $450m fine sent the shares up 5.4p to 345.9p.

Another riser was Liberty International after it confirmed reports it was preparing to split into two businesses: one focusing on shopping centres, the other on London. The shares rose 4.4p to 456.7p. On Aim, a lip-smacking trading update lifted Carluccio's, the Italian restaurant chain, 0.5p to 91.5p. Starving punters braved the snows to send turnover up 8 per cent year on year in the 17 weeks to 24 January, ahead of board expectations. The group is preparing to open two sites, which will take its network to 45. However, management expectations of "challenging" trading conditions this year pushed Charles Stanley to cut the rating to "hold" from "buy".

Gottex Market Neutral Trust said potential bidders had walked away. Yet the group's shares rose 1p to 78.75p, as the board announced it was to post a circular to shareholders detailing the winding-down proposals first set out in December.

Shares in Payzone, the cash-acceptance network that had to deny it had breached its banking agreements in November, were suspended from the growth market yesterday. Last month the company said it was still in talks with its finance providers to establish "a long-term capital structure for the business".

It announced yesterday that a private equity firm was mulling a "significant equity investment in the business". An investment would be on the basis that the debt holders write off the majority of the loans for a minority investment in the new group. "It is likely that any capital structure for the business will result in no value for existing shareholders," the statement said as the stock was suspended pending an update. On the FTSE 250, PayPoint gave up 13p to 366p.