London lower as financials weigh

Financial stocks dragged London's FTSE 100 back below the 6,000 level on Tuesday afternoon after US service sector data pulled Wall Street indices sharply lower.

Shortly after the Wall Street open, the senior UK index was down 113.8 points, or 1.9 per cent at 5,912.4, while the mid-cap FTSE 250 fell 220.7 points, or 2.2 per cent, to 10,042.9.

Schroders was a leading faller, down 6.4 per cent to £10.31, as Morgan Stanley cut its stance on the fund manager from "equal-weight" to "under-weight".

After an analysis of some of the group's funds, the bank said Schroders was the "most exposed to equity mutual fund redemptions, a trend that we think is underestimated by the market". Morgan Stanley also downgraded Aberdeen Asset Management, which fell 4.8 per cent to 140¼p.

Leading banks were weaker, with Royal Bank of Scotland off 5 per cent to 385p and Barclays (NYSE:BCS) down 3.8 per cent to 463p.

Northern Rock, however, climbed 6.5 per cent to 93¾p as RAB Capital, the company's second-biggest shareholder, said it backed the management-led proposal to rescue the bank rather than a rival offer from a consortium led by Richard Branson's Virgin Group.

Olivant, another of the potential bidders for Northern Rock, pulled out of the running on Monday.

BP was one of few risers on the FTSE 100 after its drop in quarterly net profit was offset by news that the group would increase its quarterly dividend by 31 per cent and continue to buy back shares.

The profit fall was due to weak refining margins and higher costs, with outweighed the impact of higher oil prices. BP shares rose 0.7 per cent to 545½p.

Hammerson led real estate groups lower after downgrades to the sector from HSBC.

The bank downgraded Hammerson and British Land from "neutral" to "underweight" and Land Securities and Brixton Estates from "overweight" to "underweight".

"We believe that the sector bounce in the year to date has exacerbated significant downside opportunities," HSBC said.

Hammerson fell 7.2 per cent to £10.63, British Land lost 3.2 per cent to 967p, Land Securities dropped 3.4 per cent to £15.59 and Brixton shed 4 per cent to 334¼p.

Housebuilders joined them on fears of a sharp downturn in the UK housing market. Taylor Wimpey shed 7.1 per cent to 187p and Persimmon lost 6.1 per cent to 742p.

In the mid-caps, chip designer ARM Holdings fell 17.8 per cent to 97p after missing forecasts with a 6 per cent rise in full-year revenues.

The company, which designs chips for Intel, said it was cautious on the short-term outlook for the industry, but said it had entered the year with its order backlog at its highest level ever.

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