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November 23, 2010    

FTSE falls to 6-week low, hopes pinned on US

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by Kay Murchie
FTSE falls to 6-week low, hopes pinned on US

The UK’s FTSE 100 index dropped to a 6-week low today as the euro zone debt crisis continues to weigh heavily on investors minds, despite the imminent bailout for Ireland.

The index lost 36 points to 5,644.48 by 8:57 am after earlier falling to 5,614.65 - its lowest since the beginning of October.

So far this week, the UK banking sector is down more than 3% after falling 3.4% last week.

Fears were raised yesterday for Spain and Portugal with speculation mounting that both countries would require a bailout.

However, both insisted that that Ireland’s emergency bailout will allay investors fears. Portuguese Prime Minister, Jose Socrates, said it “has no need for any aid” and insisted that its difficulties are different to those in Ireland, while Spanish Foreign minister, Trinidad Jimenez, insisted that the Irish deal will “stabilise” the euro zone.

However, yields in both countries continue to rise and spiralling deficits are making markets nervous and failure to hit Government targets for bringing down the deficit could cause a market panic over Portugal early next year, according to economists.

In addition, political uncertainty continues after Ireland’s Green Party (a partner in the Government) called for a general election.

Irish Prime Minister, Brian Cowen, is under pressure to step down but he has insisted he will remain in office until parliament passes the austerity budget - one of the terms required in order to secure its bailout.

However, hopes are being pinned on the US today. Its second estimate of quarter three economic growth is due later today, as is October existing home sales data and the latest Federal Reserve minutes.

Analysts expect Q3 growth to have increased slightly - due to stronger gains in personal consumption and inventories.

Meanwhile, existing home sales are expected to register a slight fall, while the Federal Open Market Committee (FOMC) minutes will reveal the reasoning behind its decision to inject an additional $600 billion (£373 billion) into the economy, via its quantitative easing scheme.

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