Insurance stocks dive as Footsie stages rally

On another volatile day for global stock markets, the FTSE 100 index gained 124.17 to 3985.56 despite heavy falls for Aviva, Prudential and Legal & General.

In New York, the Dow Jones Industrial Average tonight slipped 67.7 points to 8911.56 as the global economy headed into recession and dismal news for the US housing market hit confidence.
It came as money markets showed signs of thawing and governments stepped up efforts to stem the financial crisis. The cost of lending dollars, pounds and euros between banks eased again following the bailout of the global banking system, including the £37 billion nationalisation of UK banks. Three-month sterling Libor fell from 6.18% to 6.16% but remains well above the Bank of England base rate of 4.5%.

Roger Bootle of Capital Economics said: "It is becoming clear that even if the recapitalisation plans do put banks on a firmer footing, a severe economic recession is still firmly on its way."
World leaders demanded tougher banking rules to protect economies from crisis. French President Nicolas Sarkozy said he would raise the prospect of a global summit to deal with regulatory issues at a meeting with US President George Bush tomorrow. The rise in the Footsie followed yesterday's heavy sell-off which saw the blue-chip index of leading shares crash 218.2 points to a five-year low of 3861.39. The gains left the Footsie close to its opening on Monday of 3932.1 but it is adrift of Tuesday's peak of 4394.21.
City analysts warned the London rally could be short-lived with insurance stocks under particular pressure.

Joshua Raymond, market strategist at City Index, said: "We have seen considerable buying but you will be hard pushed to find anyone out there who thinks a new bull run is on the horizon."
Insurance shares fell by up to 20% in London yesterday on fears they could be the next institutions to require a bailout as solvency levels come under pressure from falling equity markets.

The Financial Services Authority is looking at lowering capital requirements for life insurers in a bid to avoid a major catastrophe in the industry.

Aviva plunged nearly 16%, following up yesterday's fall of 39p with another of 55¼p to 297¾p. The Pru, down 72¼p yesterday, was off 21¾p to 276p while L&G continued last night's sell-off with losses of 2½p to 61½p.

Paul Mumford, senior fund manager at Cavendish Asset Management, said: "These rumours about the insurers started up with the Pru and have now spread across the sector. It could be that people are now shorting what they see as a vulnerable sector. Let's face it, when the FTSE is down 42% in the year, it does affect insurers' underlying solvency ratios."

The oil price ticked slightly higher as major producers consider cutting production. Crude rose $1.15 to $71 a barrel in New York today and $2.06 to $69.90 in London.