FTSE Falls As Miners Drag, Banks Rally Fizzles

By 0904 GMT the FTSE 100 had fallen 39.30 points to trade at 4,255.90, having gained 2.4 percent on Wednesday.

Britain's leading index of shares fell 0.9 percent early on Thursday as miners fell, weighed by
lower metals prices and after Xstrata said it plans to raise $5.9 billion through a rights issue.

By 0904 GMT the FTSE 100 had fallen 39.30 points to trade at 4,255.90, having gained 2.4 percent on Wednesday. The index is down 4 percent so far this month having slid more than 31 percent last year -- its worst annual drop since its launch in 1984.

Miners were among the biggest movers as the recent tumble in metals prices forced them to look at ways of raising capital.

Debt-laden miner Xstrata fell 10.1 percent after it said it is set to launch a $5.9 billion capital raising as it looks to reduce its debt burden in the wake of the global commodities slump.

"In terms of the mining stocks they are quite heavily leveraged and on the basis that commodities have been under pressure recently it's perhaps not surprising the stock has been marked down on the back of that announcement," said Richard Hunter, head of equities at Hargreaves Lansdown.

Rio Tinto fell 6.5 percent after the Times newspaper said the miner is in talks with Chinalco, the Chinese state-owned metals group, about a capital injection and sale of assets.

Other miners were also under pressure with copper, zinc and aluminium prices all down.

Anglo American, Eurasian Natural Resources and Antofagasta fell between 1 and 5.3 percent.

U.S. and Asian stocks were bolstered after U.S. President Barack Obama's $825 billion stimulus plan cleared its first Congressional hurdle as the Federal Reserve eyed more extreme measures to ease credit market strains.

However, UK banks were lower as investors took stock after three days of hefty gains that has seen the sector rise 21 percent this week.

Royal Bank of Scotland bucked the trend, gaining 3.3 percent but Barclays, HSBC, Lloyds Banking Group and Standard Chartered fell between 2.7 and 5.1 percent.

"It's probably another pause for breath over the strength of the last day or so until we get some real detail over whether the bad bank scenario comes to pass in the U.S. and then of course whether the UK decides to adopt it as well," Hunter at Hargreaves Lansdown said.

Royal Dutch Shell fell 0.3 percent after it said its fourth quarter current cost of supply net profit fell 28 percent to $4.79 billion as crude prices collapsed.

Energy shares were in retreat, as crude prices slipped beneath $42 per barrel. BP, Cairn Energy and BG Group slid between 0.1 and 1.2 percent.

Defensive pharmaceuticals stocks added most points to the index with AstraZeneca gaining 1.9 percent ahead of its results and as investors looked to the sector as a relatively safe haven.

Among midcaps, industrial materials producer Cookson Group was the heaviest loser falling 20 percent after it announced a 240 million cash call and said it was cutting 1,250 jobs and scrapping its dividend in response to plunging steel markets.