News that Royal Bank of Scotland is considering announcing a rights issue at its annual meeting trading statement next Wednesday made it the worst bank performer.

It fell 9p to 366p, dragging down the entire bank sector, even though mortgage banks were gaining on rumours of a bailout of mortgage securities arranged by Gordon Brown.

Although all the UK banks have so far ruled out launching rights issues, the growing feeling is that some are inevitable. The speculation was given added force in the afternoon after Merrill Lynch came out with worse-than-ex-pected losses and writedowns. The world’s largest stockbroker is to cut 4,000 jobs after writing-off a further $6 billion (£3 billion). Goldman Sachs pointed to rising exposure to mortgage-backed securities and a bigger write-off which was not in the profit statement.

HBOS, owner of Halifax, gained 10½p to 550p and Alliance & Leicesterlifted 7p to 510p, Bradford & Bingley gained 1½p to 173½p and Lloyds TSB was up 1p at 442¾p. But HSBC lost 9½p to 842p and Barclays ¼p to 478¾p.

Standard Chartered was down 21p to £16.95 on worries over the credit crunch spreading to emerging markets. Ashmore, the fund manager which specialises in this area, lost 11½p to 290p after revealing the “uncertain global outlook” had triggered net redemptions of $800 million.

The FTSE 100, treading water most of the morning, gave up the ghost as the banks fell and closed down 65.8 at 5980.4.

Next was off 45p to £11.03, unsettled by a profit warning over mounting bad customer debts at online retailer Findel, down 164¼p at 280p. Next Directory accounts for a big chunk of the retailer’s growth. Marks & Spencer fell 11p to 360¼p and the big supermarkets all lost ground. Tesco were down 3.17p at 405p,Wm Morrison off 8¾p at 286¼p and J Sainsbury down 8p at 365¾p. In the mid caps, catalogue retailer N Brown fell 18½p to 232p.

Traders were also unsettled by a warning from Eaga, the supplier of energy efficient heating and loft and wall insulation to social housing via local authority contracts, which was floated in June last year. It plunged 45p to 133½p after a warning of mounting costs and delays in orders for replacing home heating systems.

Kevin Cammack of Kaupthing said the statement “reads a little like a future profits warning: third quarter has been fine but it is facing challenges in the fourth quarter”.

Experian, the credit checker which shot up Wednesday on what looked like better than expected results, lost 14¾p to 380½p after Citigroup cut to sell with a 350p target. It said a sales fall at its US Credit Services arm had accelerated in the last quarter and this could translate to a big earnings drop.

Expro International rose 123p to £14.45 after agreeing a bid from Candover at £14.35. It said another bidder was still doing due diligence.

Ferrexpo jumped 26p to 377p after agreeing a 90 per cent rise in the price of its iron ore pellets, exported from Ukraine.

— New York: Stocks on Wall Street slipped back in early trading on a disappointing batch of reports but later staged a rally. At the close the Dow Jones industrial average was up 1.20 points at 12,620.50.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Bovis and Redrow axe close to 1,000 jobs
• Irate M&S shareholders demand fresh talks
• Investors rally to B&B amid fears of contagion