FTSE Ends Down 0.9 Pct After RBS Shares Nosedive

By 0903 GMT the FTSE 100 was up 84.21 points at 4,231.27 having shed 6.8 percent last week.

Britain's leading share index ended 0.9 percent lower on Monday, led by banks after Royal Bank of Scotland shares nosedived on big losses and a grim outlook but drugmakers lent some support.

The FTSE 100 closed down 38.59 points at 4,108.47, after trading as much as 2.5 percent higher earlier in the session after Britain unveiled its second bank rescue plan.

The UK benchmark is down 7.4 percent this month after falling more than 31 percent last year -- its worst annual drop since its launch in 1984.

Royal Bank of Scotland led the banking sector lower after the bank unveiled the biggest loss in British corporate history, overshadowing the second government bailout for the sector.

RBS said it would report a 2008 loss of up 28 billion pounds ($41 billion), driven largely by a goodwill impairment charge of 15 to 20 billion pounds related to its acquisition of parts of Dutch rival ABN AMRO in 2007.

Its shares plummeted nearly 67 percent to 11.6 pence, their lowest level in more than a quarter of a century. More than 740 million RBS shares changed hands, compared with a daily average of 81.6 million in the past 30 trading days.

Sterling extended losses against the dollar, hitting a two-week low, as banking shares sank further, taking the most points off the index.

"It's absolutely carnage today," said David Jones, chief market strategist at IG Markets. "RBS plunges ... and it just brings out more and more sellers."

Jones also said the RBS loss also weighed on other banking shares.

"Investors have got absolute no confidence in the banking system at the moment," he said.

Barclays slumped 10.2 percent, extending its 25 percent losses on Friday despite confirming that its full-profit beat consensus estimates, while HSBC fell 6.5 percent to its lowest closing level since November 1998 and Lloyds Banking Group lost one-third of its value.

Britain threw its troubled banks another multi-billion pound lifeline by allowing them to insure against steep losses and guaranteed their debt to stop the credit crunch pushing the economy deeper into recession. Nomura said in a note that it remained negative on UK banks despite the latest rescue package, adding that any strength in UK bank shares would be regarded as a selling opportunity.

"We would regard the indicated latest plans as positive at the margin, but not changing the key issue of the unknown and potentially unlimited losses of the banking system and therefore whether it will ultimately require further capital injections," the broker said.

"We therefore remain negative on the domestic banks and prefer the Far Eastern names and the Swiss banks on a relative basis ... The RBS statement illustrates that scale of dilution from the effects of the downturn."

MINERS LANGUISH, DRUGS GAIN

Miners also languished, with Kazakhmys down 6.6 percent and Eurasian Natural Resources off 5.7 percent.

Heavyweight oil producers were down as crude prices eased. BP, BG Group, Cairn Energy and Tullow Oil fell between 0.2 and 5.2 percent.

Drugmakers, deemed defensive, were in demand, with GlaxoSmithKline up 3.5 percent, AstraZeneca rising 2.6 percent and Shire gaining 3.7 percent.

A price target hike from UBS also lifted Shire shares.

Utility stocks also rose. Centrica climbed 4.4 percent, United Utility gained 1.1 percent and Severn Trent added 1.3 percent.

Pearson put on 4.5 percent after the publisher of the Financial Times and Penguin books said 2008 headline earnings would rise about 20 percent, which would result in adjusted earnings per share of about 56 pence against consensus of 51 pence, according to Reuters estimates.