Falling bank stocks pull FTSE into red

Update 12pm: The FTSE dropped more than half a percentage point into the red this afternoon following a shaky morning session for banks.

The index fell more than 33 points, or 0.63%, to 5,237.94, as banks suffered.

Lloyds was down 1.4%, Barclays was down 1.2% and HSBC slipped 0.9%.

In a volatile morning session, the FTSE opened sharply higher but then dipped within minutes.

This afternoon's losses come despite positive UK unemployment figures for June which show a decline in the number of people claiming jobless benefits.

However the figures were offset by a negative report from Nationwide which suggests consumer morale fell to its gloomiest level in a year in June.

The FTSE had been expected to climb higher in early dealings as US results continue to impress following the start of the earnings season.

Oil giant BP suffered heavy loses on news it had delayed tests on a new well cap aimed at stopping the oil flow in the Gulf of Mexico. Its shares were down 1.79% or 7.35p to 403p per share.

On the upside, British Airways (BA) stocks rose on news the EU has cleared the BA-Iberia merger. Shares in the carrier were up 0.63% or 1.3p to 208.30p.

Technology firm ARM Holdings was the biggest gainer, rising 4.11% to 321.6p.

Elsewhere, in a second quarter update mining heavyweight Rio Tinto today warned investors to expect further volatility in commodity prices on fears of a double-dip recession and concerns about Chinese demand.