UK's Barclays falls sharply on funding worries

Shares in Barclays fell as much as 8 percent to hit two-and-a-half year lows on Friday amid market talk of funding worries and speculation it is telling analysts to trim profit forecasts.

Reviving concerns that hit Britain's third-largest lender this summer, when technical issues twice forced Barclays to tap the Bank of England's emergency reserves, some traders also cited funding concerns and a fresh move to borrow from the bank.

The Bank of England declined to comment on Barclays, but said it had not made any emergency loans via its penalty-rate standing lending facility on Thursday.

Barclays, which issued its latest trading update just three weeks ago, declined to comment on Friday.

At 1038 GMT, the stock was down 5.8 percent at 538.5 pence, off earlier lows of 524.5 pence, extending Thursday's losses.

Royal Bank of Scotland, the other major UK bank with a substantial investment banking business, was down 5 percent, having earlier touched lows of 473.25p, its lowest level since August 2004. Alliance & Leicester, a mortgage bank whose exposure to wholesale funding has seen it battered in the wake of the credit crunch and the near-collapse of Northern Rock, was down 4.85 percent.

The FTSEurofirst 300 index lost 1 percent, led by losses in financial shares. It extended sharp falls from the previous session on worries linked to the credit crunch and fear that Citi could cut its dividend.

There are concerns about writedowns and everything else, but the comments Barclays have made to date suggest that is not an issue, as does the fact they are still buying back their own shares, analyst Ian Poulter at Landsbanki Financials said.

Last time they bought back shares was yesterday. If they have something material to disclose, they should not be buying back their own shares.

In its latest update issued last month, Barclays said profit at its Barclays Capital investment banking arm in September was substantially ahead of the previous two months.

Investors remain jittery about the exposure of banks, particularly those with strong investment banking arms, to the credit market turmoil that has battered financial markets, increasing borrowing costs and drying up liquidity.

Analysts expect BarCap's earnings growth to slow sharply next year. (Additional reporting by Christina Fincher, Dan Lalor and Mark Potter, Jamie McGeever and Sitaraman Shankar)