FTSE down sharply; BP plunges as "top kill" fails

* FTSE drops 1.6 percent

* BP slumps as “top kill” fails

* Prudential rises as AIG rejects revised offer for AIA

By David Brett

LONDON, June 1 (BestGrowthStock) – Britain’s top shares fell early
on Tuesday, as BP (BP.L: ) slumped over 12 percent after its “top
kill” solution failed to stem the major oil spill in the Gulf of
Mexico, while Prudential rose as AIG (AIG.N: ) snubbed its revised
offer for AIA.

By 0817 GMT, the FTSE 100 (.FTSE: ) was down 82.39 points or
1.6 percent at 5,106.04, having fallen 0.1 percent on Friday.

BP accounted for almost half of the blue-chip index’s
decline after the oil major said its latest attempt to plug or
contain the gushing oil well had failed. [ID:nN01262229]

The financial cost of tackling the oil spill in the Gulf of
Mexico, the worst in U.S. history, now stands at $990 million,
as BP prepares for a new attempt to control the flow of oil this
week.

BP’s failure, and a 1.3 percent drop in the crude price
(CLC1: ) dented sector sentiment, with Royal Dutch Shell (RDSa.L: )
down 2.4 percent, and oil explorers Tullow Oil (TLW.L: ) and Cairn
(CNE.L: ) off 0.8 and 1.2 percent respectively.

The blue-chip index lost 6.6 percent in May, its biggest
monthly drop since March 2009, on mounting fears about Europe’s
huge debt problems and worries about the impact of austerity
measures.

“With the weakness on Wall Street we saw on Friday, and the
uncertainty over the eurozone, the fragility of the market
certainly hasn’t gone away … we are back to risk aversion,”
said Richard Hunter, head of equities at Hargreaves Lansdown.

Banks were again under pressure on Tuesday after the
European Central Bank warned that euro zone banks face up to 195
billion euros ($238.9 billion) in a “second wave” of potential
loan losses over the next 18 months due to the financial crisis,
and it disclosed it had increased purchases of euro zone
government bonds. [ID:nLDE64U0OS]

Domestic banks Barclays (BARC.L: ), Royal Bank of Scotland
(RBS.L: ) and Lloyds Banking Group (LLOY.L: ), were down 1.3-2.6
percent on fears over their potential exposure to the problem.

Spain, the fourth-largest euro zone economy, saw its credit
rating downgraded a notch by Fitch Ratings agency from the
maximum AAA to AA+ late on Friday.

AIA PRUDENT

Shareholders in Prudential reacted positively after American
International Group turned down the British insurer’s revised
offer for its Asian Life insurance unit AIA.

AIG said it would not consider revising the terms of a deal
in a move that threatens to derail the industry’s largest
transaction. [ID:nTOE64U07Y]

Prudential shares rose 3.7 percent, one of the few FTSE 100
gainers. Investors had expressed concerns over the size of the
deal, which the British firm was seeking to cut in value to
$30.38 billion.

Among other blue-chip risers, Scottish & Southern Energy
(SSE.L: ) climbed 2.2 percent after it said it does not plan to
acquire a major stake in the UK electricity distribution
networks owned by French utility EDF (EDF.PA: ), which would
require raising equity.

Johnson Matthey (JMAT.L: ) added 1 percent after Citigroup
upped its rating for the metals group to “buy” from “hold” on
valuation grounds, ahead of full-year results due on June 3.

But miners were weaker along with metal prices after
disappointing Chinese data knocked demand sentiment.

China’s factories scaled back production last month and
eased back hiring in response to a critical drop in new orders.
[ID:nTOE65001Z]

BHP Billiton (BLT.L: ), Anglo American (AAL.L: ), Lonmin (LMI.l: )
and Kazakhmys (KAZ.L: ) fell 2.3-2.8 percent.

Stock Investing

(Editing by Erica Billingham)

([email protected] +44 20 7542 8099) Reuters
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($1=.8163 Euro)

FTSE down sharply; BP plunges as “top kill” fails