Weaker Aviva outweighs gains in financial stocks as Footsie slips back

FTSE: 5,288.41 (–75.30) Mid-250: 10,266.00 (–42.58) Small Cap: 2,899.23 (–16.44)POTENTIAL THREATS from exposure to the euro zone were under consideration in London yesterday after research from UBS sought to measure companies' exposure to the faltering currency.

The bank added insurer Aviva to its list of “least preferred” stocks in the sector, due to its “significant exposure” to the euro zone, the company’s “low solvency ratio” and its “comparatively geared balance sheet”.

“Aviva generates over 50 per cent of profits and has circa 45 per cent of capital invested in the euro zone,” said analyst James Pearce.

Aviva fell 4.1 per cent to 295p, the biggest single faller on the FTSE 100, with pressure also coming from the stock trading without further rights to its latest dividend payment.

Within the same sector, UBS moved Prudential on to its “most preferred” list, mentioning “its ability to benefit from economic expansion in Asia” as well as its “lack of exposure to the euro”.

Prudential fell just 0.5 per cent to 597p.

Overall, the run higher on London’s equities market ran out of breath, as traders took a break from buying riskier stocks and turned their attention to the prospect of new stimulus measures in the US.

With the Federal Reserve’s two- day monetary policy meeting due to end after the close of European trade, there was caution in the air.

The US central bank was expected to stop short of a further full round of quantitative easing but there were hopes that it would increase the average maturity of its balance sheet and reduce the interest paid on bank reserves in order to provide some stimulus.

London’s banking stocks managed to make further progress as hopes for such a move grew.

Although HSBC fell 1.7 per cent to 511.9p, Barclays gained 1.6 per cent to 156.71p, Royal Bank of Scotland added 1.3 per cent to 23.38p and Lloyds Banking climbed 5.6 per cent to 36.16p.

Resource stocks were weaker, with investors in no mood to add to their exposure to risk. BP slid 2.5 per cent to 404.05p, Royal Dutch Shell fell 2 per cent to 2,069p and Tullow Oil declined 2.5 per cent to 1,333p.

Antofagasta was the worst-performing stock on the FTSE 100, falling 6.9 per cent to £11.14, while ENRC, the ferro-alloys producer, lost 3.4 per cent to 631p. Glencore, a commodities trader, fell 3.4 per cent to 436¼p. – (Copyright The Financial Times Limited 2011)