The FTSE 100 fell sharply yesterday as traders took profits on an index that has outperformed Europe this year, with banks leading losses after comments by key policymakers.

The FTSE 100 closed down 66.92 points, or 1.1 per cent, at 6,228.42, lagging major European peers.

The index has been the stand-out performer in Europe since the start of 2013, having seen its best January since 1989, and was ripe for profit taking, traders said.

Since posting its biggest one-day fall in three months on Monday, the index has failed to close above 6,300 all week.

However, the FTSE has gained five per cent so far this year, compared to slight falls year-to-date on the German DAX and the French CAC.

Banks were among the biggest fallers yesterday, with the sector dropping 1.6 per cent after Bank of England governor-designate Mark Carney outlined a tougher line on the sector.

European Central Bank President Mario Draghi’s comments in his monthly press conference also hit stocks after he said that the outlook for European growth would remain weak for the early part of 2013.

“Draghi’s comments in the press conference that economic forecast risks are to the downside will have been very significant,” Jeremy Batstone-Carr, analyst at Charles Stanley, said.

“There’s been a combination of a number of factors today serving to remind investors that stockmarkets, through their performance, have got very much ahead of operating reality for many firms.”

One such firm hit by changing operating realities was Burberry Group, which was the worst-performing blue-chip stock, tumbling 4.6 per cent.

Rival luxury goods companies also fell as traders cited a Chinese advertising ban on certain expensive gift items as hurting the sector, undermining the assumption that strong demand from rich emerging market consumers could help support sales.

However, mobile phone operator and market heavyweight Vodafone provided basic support to the market. It rose 0.9 per cent, bolstering the FTSE 100 index by three points alone, after the group maintained its outlook for the year and analysts expected the firm to dodge earnings forecast cuts, despite weak third-quarter sales. (Reuters)

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