U.K. Stocks Fall to Two-Month Low; Barclays, Lloyds Lead Drop

By Alexis Xydias and Sarah Jones

Jan. 21 (Bloomberg) -- U.K. stocks slid to a two-month low, led by Barclays Plc and Lloyds Banking Group Plc as concern deepened the country’s lending industry will need further capitalization.

The benchmark FTSE 100 Index fell 66.41, or 1.6 percent, to 4,024.99 at 12.37 a.m. in London, headed for its lowest close since Nov. 21. The FTSE All-Share Index lost 1.6 percent, while Ireland’s ISEQ Index dropped 3.1 percent.

Barclays, the U.K. bank that turned down government funding last year, dropped 20 percent to 58.5 pence, after plunging 61 percent in the previous six sessions. Lloyds, the country’s biggest mortgage lender, declined 17 percent to 37.1 pence.

The FTSE All-Share Banks Index fell for a sixth day, having slumped 37 percent in the period, as investors speculate banks may need to take more writedowns or the government may have to nationalize one or more of them. Royal Bank of Scotland Group Plc lost two thirds of its value on Jan. 19 after forecasting the biggest loss ever reported by a U.K. company and the government was forced to raise its stake in the bank.

“There is little doubt that the banking system is wilting and the government and the Bank of England seem to be running out of options,” said David Buik, a London-based market analyst at BGC Partners in London. “Sentiment is acrid and confidence is zero rated.”

Prime Minister Gordon Brown this week gave the Bank of England unprecedented powers to buy securities and unveiled a 100-billion pound ($140 billion) bailout for banks.

U.K. unemployment rose at the second-fastest pace since 1991 in December as the worsening slump prompted companies from retailers to automakers to cut jobs, the Office for National Statistics said today.

Bailout

Irish banks also fell. Bank of Ireland Plc dropped 13 percent to 35 cents. Allied Irish Banks Plc retreated 6 percent to 42 cents.

The Irish government said Jan. 16 it would seize control of Anglo Irish Bank Corp. following a scandal that forced the resignations of its chief executive officer and chairman. Three days later, Brian Goggin, CEO of Bank of Ireland, said he will retire a year early following a bailout announced in December that also included Allied Irish Banks.

The following stocks also rose or fell in London and Dublin. Stock symbols are in parentheses:

African Copper Plc (ACU LN) plunged 0.5 pence, or 33 percent, to 1 pence. The company mothballed a mine and said it needs $15 million in financing to remain a “going concern.”

Autonomy Corp. (AU/ LN) rose 31.5 pence, or 3.2 percent, to 1,007 pence. The U.K.’s second-biggest software maker, said fourth-quarter profit more than doubled boosted by sales to banks.

Flying Brands Ltd. (FBDU LN) dropped 0.5 pence, or 1.6 percent, to 31 pence. The U.K. mail-order retailer that delivers flowers and collectibles cut its 2008 profit forecast after “flat” sales.

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Sarah Jones in London at sjones35@bloomberg.net.