Following a meeting with the leaders of France and Italy, German chancellor, Angela Merkel, quashed market hopes that Europe’s paymaster would open the door to the launch of joint euro zone bonds or a quantitative easing program by the European Central Bank.
“It was a completely wrong signal; anyone that was in for the short term closed their position,” Lee Curtis, a trader at City Index, said.
With Wall Street shut for Thanksgiving, trading volumes on the FTSE 100 were light at 88 percent of their 90-day average, encouraging intra-day profit taking and causing sharp moves on the index, traders said.
The FTSE 100 closed 0.24 percent lower at 5,144 points, having risen to a day high of 5,184 in morning trade, boosted by better-than-expected macro data from Germany, before falling to a trough of 5,098 in the afternoon, when Merkel made her comments.
“People were just taking profits where they could, that’s all. From an eight-days trough, they were just seeing a bit of profit and they were taking,” Adam Saward, a trader at Penson Financial Services, said.
“No-one is looking to see any good news until the end of the year,” Saward noted, adding he expects the FTSE 100 to climb around 200 points to 5,300 in the remainder of the year, pointing a 10.2 percent annual fall.
Britain’s blue-chip gauge fell 7.9 in the last nine sessions, with banks and miners responsible for most of the recent losses as investors offloaded risky assets due to sovereign debt tensions in the euro zone and fears of a global economic slowdown.
However, the two sectors rebounded today, with banks up 1.2 percent and miners up 1.1 percent, led by Fresnillo and Royal Bank of Scotland, up 4.4 percent and 3.6 percent, respectively.
In a reminder of the dangers facing the financial sector, the European Banking Association warned lenders they needed to plan for a potentially disorderly break-up of the euro zone, or the exit of some countries as part of their contingency planning.
The euro zone crisis was also impacting the United Kingdom, which confirmed its economy grew just 0.5 percent in the third quarter of this year.
“The global slowdown is weighing on (British) exports while the ongoing debt crisis with the related financial strains is affecting consumer and business confidence as well as increasing bank funding costs,” UniCredit said in a note.
Weakness was mirrored by corporate results, with Europe’s No.2 electrical goods retailer Dixons recording a wider first-half loss, as cash-strapped shoppers cut back on purchases of discretionary goods.
Its shares closed 0.7 percent higher, having fallen sharply ahead of the results, which were ahead of expectations according to investment bank Espirito Santo.
Privately owned retailer Arcadia added to the gloom, posting a 38 percent fall in full-year profit.
