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Rumours unsettle nervous markets

The FTSE 100 enjoyed its 4th successive day of gains this morning, taking its lead from a strong US performance overnight as the S&P and Dow Jones Industrial Average put on around 1.3%.

It appears markets were once again rallying on some improved economic data from the US and expectations of QE3 form Jackson Hole on Friday.

Diageo led the FTSE in early trade, investors impressed with the half yearly results from the drinks group that showed like-for-like sales growth of 5%. Strong performance in emerging markets was also highlighted, with brands such as Jonnie Walker enjoying success in Asia. The shares finished the day up 4.7% at 1170p.

The FSTE was enjoying a broad based rally with financials performing strongly even before news broke that Warren Buffet’s Berkshire Hathaway was to purchase a $5bn stake in the troubled Bank of America.

The vote of confidence, which was welcomed with cheers from the floor of the New York stock exchange, had a much broader impact than simply lifting shares in America’s biggest bank by more than 20%. Other financial stocks were also buoyed, having a positive effect on US indices as well as those in Europe.

The news helped reverse sentiment after disappointing Initial jobless claims from the US showed that applications for unemployment benefit rose to 417,000 against an expected 405,000.

The mood was however short lived, and markets took a negative turn approaching the European closing bell in response to rumours that Germany may lose its triple A credit status.

Whilst being quickly denied by all three ratings agencies, the damage had already been done. The German DAX was at one stage down more than 4% and in an unusual scenario, stocks in more defensive sectors were badly hit.

Whilst Admiral was again at the bottom of the FTSE 100 (replicating yesterday’s performance), shares in GlaxoSmithKline, AstraZeneca and Shire all lost more than 2%.

Barclays and RBS held the top two positions at the close of the market, both posing a 5.5% gain. The FTSE 100 finished an initially positive day down 75 points at 5131 with a 1.4% loss.

This was posted in Bdaily's Members' News section by John Dance .