At the start of a busy week of earnings announcements, many investors yesterday took their chance to sell before potential bad news.

HBOS was the worst-hit blue chip in anticipation of what are widely expected to be grim first-half results on Thursday. The bank – likely to lose its status as the UK’s largest mortgage lender when Santander, the Spanish owner of Abbey, reports results today – is expected to announce pretax profits down by as much as 60 per cent to about £1.2 billion.

Shares in HBOS were not helped by weekend press speculation suggesting that it could be forced to reveal more hefty writedowns alongside its results, as credit losses rise and a weak market hits corporate banking income.

HBOS was also hit by comments from BBVA, the Spanish bank seen as a potential buyer, that it would concentrate on organic growth rather than look at acquisitions. Asked whether he was interested in HBOS, José Ignacio Goirigolzarri, BBVA’s chief operating officer, replied: “We have clear and defined priorities and that hasn’t changed. We are focused on generating organic results within the group and our priority is to keep on with the integration in the United States.”

HBOS fell as much as 10 per cent in early trading, before recovering slightly to close down 22¾p, or 7.3 per cent, at 287½p.

Rexam, the maker of drinks cans, was hit hard before interim results, due tomorrow, falling 24¾p to 352p, after Merrill Lynch cut its target price to 500p, from 570p. Although the broker kept a “buy” rating and expects Rexam to meet first-half targets, it said that all eyes would be on its outlook as costs rise. Two of Rexam’s main peers, Ball and Crown, the American companies, have recently reported second-quarter earnings, with Ball warning on rising fuel and freight costs.

Barclays was off 17¾p at 338¾p after Cassa di Risparmio, of San Marino, an independent savings bank, took legal action against the British bank, seeking €170 million (£134 million) to compensate for losses linked to derivatives products.

Overall, the FTSE 100 closed down 40 points at 5,312.6, with losses offset to some extent by gains for miners. Anglo American, up 77p to £27.50, Xstrata, up 89p to £33.59, and BHP Billiton, up 69p to £16.22, rose after Chevreux upgraded them all to “out-perform”, noting that a recent sell-off had left miners looking cheap.

Antofagasta was the FTSE 100’s biggest riser, up 36p to 540p thanks to higher metal prices.

J Sainsbury rose 6¼p to 323½p after the Qatar Investment Authority raised its stake in the retailer to 27.3 per cent.

In the 250, Keller, the ground engineer, was among leading risers, up 47p to 695p, after reporting first-half pretax profits up 19 per cent to £54.2 million, benefiting from a drive to diversify geographically, with strong growth in the Middle East and Australia. Keller also met its promise to raise dividends by 15 per cent, up to 6.9p.

Rentokil Initial was off 3p at 67¾p, as several brokers cut price targets after a profit warning on Friday, the fourth by Rentokil since December.

— New York: Shares fell amid fears that the financial sector may be hit by more credit losses, while a rise in oil prices revived concerns about inflation and consumer spending. The Dow Jones industrial average closed down 239.60 points at 11,131.10.

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