U.K. stocks fell the most in five months as Standard & Poor’s Ratings Services cut its outlook for the long-term sovereign credit rating of the U.S. and concern grew that Greece will be unable to avoid a default on its debt.
Barclays Plc led bank shares lower. Smith & Nephew Plc lost 3 percent slid after Synthes Inc. said it was in talks with Johnson & Johnson over a possible takeover. Bwin.Party Digital Entertainment Plc surged 30 percent after founders of rival Internet poker companies were indicted in the U.S. with charges ranging from bank fraud to illegal gambling.
The benchmark FTSE 100 Index slid 125.93, or 2.1 percent, to 5,870.08 at the 4:30 p.m. close in London, the biggest drop since November 16. The FTSE All-Share Index fell 1.8 percent and Ireland’s ISEQ Index lost 1.6 percent.
The U.S. rating revision “has somewhat taken markets by surprise, and has exacerbated already fragile sentiment,” said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London. “It also comes as a timely reminder that, although focus has tended of late to center on peripheral Europe, opposing political forces in the U.S. need to unite and tackle an increasingly difficult deficit situation.”
S&P affirmed its AAA long-term and A-1+ short-term sovereign credit ratings on the U.S. and revised its outlook on the long-term rating to negative from stable. The ratings agency said that more than two years after the beginning of the recent crisis, U.S. policy makers have not agreed on a strategy to reverse recent fiscal deterioration or address longer-term fiscal pressures.
The FTSE 100 has still rebounded 4.9 percent since reaching its 2011 low on March 16 as investors bet global economic growth will underpin earnings, offsetting higher European and Asian interest rates, the March 11 earthquake in Japan and increasing oil prices.
European banks retreated today. Greece’s Finance Minister George Papaconstantinou said the country has no plan for debt restructuring even as German officials openly discussed the possibility and investors charged a record amount to insure the country’s obligations. Papaconstantinou spoke in a Washington interview on April 16.
The Wall Street Journal reported a day later that the International Monetary Fund regards Greece’s debt as unsustainable and the government should consider restructuring as early as next year. The newspaper cited three people familiar with the situation.
The cost of insuring Greek sovereign debt jumped 56 basis points to a record 1,211, according to CMA prices for credit-default swaps. That indicates there’s a 64.5 percent probability of default within five years.
Barclays fell 3.6 percent to 290.7 pence, the biggest slide in three months. Royal Bank of Scotland Group Plc retreated 2 percent to 41.81 pence. The FTSE 350 Banks Index dropped 2 percent, the most in a month.
Smith & Nephew sank 3 percent to 675.5 pence, the biggest drop since January. Johnson & Johnson had been mooted earlier this year as a possible bidder for Smith & Nephew, according to analysts at Sanford C. Bernstein & Co., Morgan Stanley and Investec Securities.
Bwin.Party soared 30 percent to 170 pence, a record gain. Founders of Internet poker companies that continued taking bets in the U.S. after financial transactions were banned in 2006 were charged last week in New York City by the U.S. Justice Department.
Kenmare Resources Plc sank 3.1 percent to 48.05 pence after reporting earnings before interest, tax, depreciation and amortization of $17.4 million in 2010.
“Maybe some people were factoring in much higher pricing,” said Job Langbroek, a Dublin-based analyst at Davy Stockbrokers who kept his “outperform” recommendation on the producer of titanium minerals in Mozambique,.
Kenmare and Heritage Oil Plc were among the biggest fallers on the FTSE 350 Index. Heritage Oil sank 6.8 percent to 251.6 pence after saying it plans to start a drilling program in the Iraqi region of Kurdistan.
“Longer-term gas commercialisation is challenging, and the timing of it is beyond Heritage’s control,” Vugar Aliyev, a London-based analyst at Matrix Capital LLP with a “reduce” recommendation on the shares, wrote in a report today. “Gas supplies to local power stations are likely to be on less attractive terms and for limited volumes.”
Resolution Ltd., the U.K.’s biggest insurance buyout firm, sank 4.8 percent to 294.7 pence as UBS AG reduced its stance on the shares to “neutral” from “buy,” citing weak operational performance, a mixed valuation picture and the strong recent performance of the stock. The shares have rallied 4.1 percent since the start of March, compared with a 1.1 percent decline in the FTSE 100.