Reuters: Hot Stocks: Cypriot bank levy dents Britain's FTSE

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Cypriot bank levy dents Britain's FTSE Mar 18th 2013, 12:42 Mon Mar 18, 2013 8:42am EDT * FTSE 100 down 0.7 percent, off early lows * Cyprus deposit levy plan dents confidence in euro zone * Contagion risk seen as limited * M&S rallies on Qatari 8 bln pounds bid talk By Francesco Canepa LONDON, March 18 (Reuters) - Banks weighed on Britain's FTSE 100 index on Monday as an unprecedented decision to tax deposits in Cyprus as part of a bailout package rattled markets - particularly banking shares - across the region. Shares in UK-listed banks, which are exposed to the euro zone through the wholesale funding market, fell 1.7 percent, with domestically focused Royal Bank of Scotland and Barclays down around 5 percent. The levy, which has yet to be approved by the Cypriot parliament, is the first of its kind in the euro zone, although market fears of contagion remained in check as investors were of the view the tax was unlikely to be applied in larger countries. The FTSE 100 was down 0.7 percent at 6,446.81 points by 1223 GMT, well off an intra-day low of 6,386.17. "We definitely got a negative reaction, but it's not the kind of reaction that is telling me that the market thinks it's going to spread," said Lorne Baring, managing director of B Capital, a Swiss asset management firm. "It's special to Cyprus because of the indebtedness of Cyprus and the size of its banking system being so inflated." Baring cautioned that approval of the bailout package by the Cypriot parliament was key to underpinning investor confidence, adding that political gridlock on the Mediterranean island could send European equity indexes down as much as 3 percent. Parliament in Cyprus has put off a vote on the measure and, with public anger at the deal, the government said it was already looking to ease the pain for small savers. The FTSE 100 volatility index, which gauges option prices on UK blue chips and is regarded as a measure of investor 'fears' of market swings was up 16.8 percent to 13.99 points, but off an early high of 14.93. Alistair McCaig, a strategist at spreadbetter IG, said investors took comfort from the fact there was no sign of a run on banks in other euro zone countries. "As the morning progressed, the instant fear factor has diminished somewhat," McCaig said. "Psychologically I suspect it will be relatively quickly absorbed by the American traders. Every time there has been a dip on the market it has been bought into, and if you look at the price action of this morning a similar mentality has been taken by traders today." U.S. futures cut losses ahead of the open on Wall Street, with contracts on the S&P 500 down 0.9 percent. Helping curbing losses on the FTSE was British retailer Marks & Spencer, which rose 8.6 percent after a report in The Sunday Times said the Qatari sovereign wealth fund wants to assemble a consortium to mount an 8 billion pound ($12 billion) takeover of M&S. (Reporting By Francesco Canepa) Link this Share this Digg this Email Reprints

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