Banks hit as FTSE sees sell-off

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Several of the UK's largest banks have seen their shares tumble amid lingering concerns about the UK economy.

HBOS was worst hit, with shares in the UK's largest mortgage lender falling 11%. Royal Bank of Scotland (RBS) slid 9% and Alliance & Leicester fell 8%.

The HBOS sell-off meant its share price fell to 258 pence, less than the 275p price at which investors have been offered shares in a £4bn rights issue.

Shares in property firms also buckled in extremely volatile trading.

Amid the weakness in two key sectors, the FTSE 100 index closed more than 100 points lower at 5723.3.

The slump in HBOS shares prompted the firm to issue a statement maintaining that its planned rights issue - designed to bolster its balance sheet - was fully under-written by investment banks and proceeding "according to plan".

Investors must decide by 18 July whether to buy the new shares offered by HBOS, the second frontline bank after RBS Group to seek to raise extra capital to tide it through the current credit turmoil.

HBOS statement

Property firms suffered heavy losses after two major investment banks expressed concerns about the outlook for the house building industry.

House builders have been hit by falling sales and higher cancellation rates as the housing market has slowed down. They also may be hurt by a drop in the value of land, and higher unemployment.

Barratt Developments, Taylor Wimpey and Redrow saw their shares fall 20%, 19% and 18% respectively.

See Barratt Developments shares See Taylor Wimpey shares

The sell-off in property shares also hit Bellway, which fell 11%, and Bovis Homes, which shed 7% of its value.

The only house builder still listed on London's FTSE 100 share index, Persimmon, fell 3%.

The firm will lose its place in the share index when it is recalculated after the market closes on Wednesday, as will Alliance and Leicester.

Earlier this year Persimmon said it would not build any new homes on new sites until the market picked up.

Uncertainty

Some investors are betting on further falls across the industry, especially if the economic environment worsens.

"Uncertainty has been and remains both a pervasive as well as a malign force overshadowing sentiment toward the UK house builders," Merrill Lynch said in a research note.

"In particular, trends in unemployment remain potentially of the greatest concern."

UK unemployment rose by 38,000 to 1.64 million from February to April, according to the latest government figures.

There was further bad news about the housing market this week when the Royal Institution of Chartered Surveyors said the number of properties sold had fallen to a record low.