FTSE fights back after US downgrade

The FTSE 100 is in the black in early trading after falling 1% on opening, after S&P's downgrade of US debt sparked a further share sell-off across the globe.

The index of leading shares opened down more than 1% but recovered swiftly and by 8.30am was up 0.7% or 40 points to 5,287.

Miners and the oil majors had been the main drag on the index after another sharp fall in the price of oil.

Brent crude shed 1.8% in early trading, hitting $107.4 per barrel, but the real loser continued to be WTI, which slumped a further 2.6% to just $84.6.

Oil fell as hedge funds reduced bullish bets on crude after the US downgrade.

However, by 8.30am miners had started to recover and financials also posted gains as they recovered from last week's sell-off.

RBS was up 5.57% to 29.75p, Lloyds rose 4.45% to 34.31p while Barclays was up 3.31% to 192.15p.

London's mixed start followed one of the worst weeks for investors for years, with the FTSE shedding 10% in total last week, 2.7% on Friday alone.

Asian markets also saw losses Monday prior to London's open. Japan's main Nikkei 225 index fell 2.4%, while South Korea's Kospi lost 5%, Hong Kong's Hang Seng was down 4%, and Mumbai's Sensex slid 3%.

Investors are worried about the outlook for global growth and debt issues in the US and Europe.

The falls in Asia came despite the European Central Bank's announcement late last night that it would buy eurozone bonds.

Meanwhile investors continued to pile into safe havens with gold hitting a fresh record high in Asian trading, edging above $1,700 an ounce.

Treasuries also rallied, with the 10-year yield falling five basis points, despite the US credit rating downgrade.

The dollar reached a low of 74.85 Swiss centimes before recovering to trade at 75.41, while oil sank 4% in New York.

There was some respite in Europe however, as Italian and Spanish government bonds opened higher.

The move took some pressure off policemakers by reducing the additional yield investors demand to hold the securities instead of benchmark German bunds, after the European Central Bank signalled it may buy the securities.

The yield on 10-year Italian bonds fell 50 basis points to 5.59% at 7:43am in London. That narrowed the difference in yield, or spread, to similar-maturity German debt by 66 basis points to 308 basis points. The yield on two-year Italian notes dropped 26 basis points to 4.26%.

The yield spread between Spanish and German 10-year bonds narrowed 70 basis points to 299 basis points as the yield on the Spanish securities dropped 56 basis points to 5.5%. The Spanish two-year note yield fell 53 basis points to 3.83%.