Moody's downgrade hits UK banks

London (Financial Times) -- London's banks fell on Friday after Moody's cut its rating on a dozen UK financial institutions, sending the sector to the bottom of the FTSE 100. Support from defensive stocks left the index flat overall .
The ratings agency issued a two-notch downgrade for Royal Bank of Scotland -- from "AA3" to "A2"-- in an announcement made just minutes before the start of trade.
The news came on top of a report in the Financial Times about fears that a fresh bail-out of the part-nationalised lender could be required. Its shares moved to the bottom of the FTSE 100, falling 3.6 per cent to 23½p.
Lloyds Banking Group fell 3.4 per cent to 35.2p after Moody's cut its rating by one notch, from "AA3" to "A1".
"Moody's reassessment assumes a decrease in the probability that the UK government would provide future support to financial institutions if needed," said the ratings agency.
Even though Barclays was not one of the banks affected, its shares fell in line with the losses in the sector. The stock was 1.3 per cent weaker at 165.7p. HSBC, which was also left out of Moody's re-rating of both listed and unlisted lenders, rose 0.2 per cent to 510.6p.
The FTSE 100 slipped 5 points to 5,286.42, helped by defensive stocks, in demand as traders sought protection from the sharp gains of the previous two sessions, the benchmark index's biggest two-day gain since 2008.
But the near-term fate of the market was once more looking dependent on US employment data, with the September non-farm payrolls report expected to show the creation of 60,000 jobs.
"With momentum clearly on the rise, it looks as if short-traders are aggressively covering their positions while bullish traders are buying strength for the first time in weeks," said James A. Hyerczyk, Analyst at Autochartist.
"Because of the steepness of the rally and the short-term overbought conditions, traders have to be aware of the possibility of a near-term correction especially since Friday's U.S. Non-Farm Payrolls report typically triggers a volatile two-sided reaction. Based on the short-term rally from 4,868.60 to 5291.26, traders should watch for a possible pullback into 5,079.93 to 5,030.06."
Among the mid-caps, a fresh profit warning from Premier Foods sent its stock 39 per cent lower to 6.1p. The maker of Hovis bread and Bisto gravypowder said third quarter total sales fell by 3.6 per cent to £477m.