Sterling loses ground as state bailout expected for Italian bank
Sterling lost ground against major currencies on Thursday as investors cheered an upward revision to US growth and prepared for a state bailout for Italian lender Banca Monte dei Paschi di Siena (BMPS).
The pound hit a seven-week low against the US dollar, down 0.5% at 1.228 after US gross domestic product (GDP) climbed to 3.5% in the third quarter, revised higher from previously estimates of 3.2%.
Euro strength also hit sterling, which fell 0.75% to 1.176 as markets priced in the prospect of a bailout for BMPS, which earlier this week warned that it could run out of cash within four months if it failed to secure fresh capital.
Italian legislators are now expected to nationalise the struggling lender after approving a 20 billion euro (£16.9 billion) rescue plan for some of the country's weakest banks.
BMPS shares were on a rollercoaster ride, having been suspended in early trade after falling 6%, before rising as high as 3% just hours later, and falling more than 7.5% in the afternoon.
European banks struggled to make gains amid the volatility.
The FTSE 100 closed marginally higher by 0.3% at 7,063.68 points, but gains were tempered by the likes of Barclays, which fell 1.75p to 227p and Lloyds Banking Group which dropped 0.28p to 64p.
Connor Campbell, a financial analyst at SpreadEx, said BMPS was "rapidly running out of time" to raise the 5 billion euros (£4.2 billion) it "desperately needs".
"It's only managed 2 billion euros so far, with a key Qatari investor choosing not to invest a 1 billion euro chunk - it looks like MPS will be forced into a government bailout."
Italy's FTSE MIB closed lower by around 0.5%, while the German Dax fell 0.1% and the French Cac 40 closed flat.
In oil markets, Brent crude was up 0.9% at 54.98 US dollars (£44.73) per barrel as investors gained hopes that major producers would abide by an Opec agreement to cut output.
Meanwhile, UK investors were digesting better-than-expected but relatively bleak UK consumer confidence figures, with the GfK index coming in at minus 7 for December despite expectations for minus 9.
It came as the latest survey from the Confederation of British Industry (CBI) showed that private sector growth hit a one-year high thanks to a pick-up in manufacturing activity, but warned of a "significant" slowdown in the year ahead.
In UK stocks, London-listed Indian online fashion retailer Koovs fell 4.25p to 48.25p as the company reported a £9.1 million half-year loss compared with £5.7 million last year, but said it was due to marketing and technology investments.
Shares in HSS Hire fell 1p to 83p after the tool supplier said it would raise £13 million through a share sale to strengthen its balance sheet and fund investment.
The firm, which was forced to issue a profit warning last month, is in the middle of a transformation programme which will see the integration of a new national distribution and engineering centre.
The biggest risers on the FTSE 100 were DCC up 210p at 6,070p, Intertek up 96p at 3,414p, Fresnillo up 31p at 1,124p, and Paddy Power Betfair up 220p at 8,735p.
The biggest fallers on the FTSE 100 were BHP Billiton down 21p at 1,270.5p, Rio Tinto down 30.5p at 3,081p, Barclays down 1.75p at 227p, and Anglo American down 8.5p at 1,126p.