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Aviva turnaround cheers subdued market

INSURANCE stocks were in focus as the latest stage of Aviva's recovery cheered investors while rival RSA lost ground after admitting that its own turnaround would cost more than expected.

The wider market was subdued as investors digested tit-for-tat sanctions between Russia and the West over Ukraine, while European Central Bank (ECB) president Mario Draghi warned the crisis could weigh on the fragile eurozone recovery.

The FTSE 100 Index slipped 38.8 points to 6597.4, in a week during which it has fallen due to geopolitical and economic risks. Germany's Dax and France's Cac 40 both shed one per cent.

The pound was little changed against the greenback at 1.68 US dollars after the Bank of England left interest rates at 0.5%. But sterling gained against the single currency, to 1.26 euros, as Mr Draghi's remarks on the risks facing the continent appeared to underline the need for continuing stimulus policies from the ECB.

In equities, the focus on the insurance sector came as Aviva and More Than owner RSA updated the City in half-year results. Aviva shares were nearly three per cent, or 12.8p, up to 502.5p, as chief executive Mark Wilson reported a four per cent operating profits rise to £1.05bn.

He said the company was on track to cut £568m year in costs by the end of this year, compared with the £400m target set in 2012.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said investors were starting to believe in Aviva's recovery story, with the market consensus on the shares having recently strengthened to a buy.

RSA results showed the challenge facing Stephen Hester, the former Royal Bank of Scotland boss brought in as chief executive. It reported half-year profits of £69m against £250m a year ago.

He admitted the cost of his "clean-up" of the group was proving higher than expected, although he pledged to reinstate the company's dividend in full-year results. Shares fell three per cent, or 13.4p, to 430.5p.

Elsewhere, budget airline easyJet was on the back foot after a downgrade from analysts at Barclays, citing limited earnings momentum through the winter and concerns over its capacity growth. The stock slipped three per cent, or 44p, to 1239p

In the FTSE 250 Index, shares in power station business Drax slumped eight per cent after it lost a Court of Appeal battle against the Government over subsidies.

Its power station in North Yorkshire is converting its units from coal to biomass and argued unsuccessfully that its third unit qualified for a new and higher renewable energy subsidy. Shares fell 58.5p to 651.5p.

The biggest risers on the FTSE 100 Index were Sage up 11.4p to 382.1p, Aviva up 12.8p to 502.5p, Royal Mail up 10.2p to 414p and Legal & General up 5.7p to 237.7p.

Biggest fallers were Coca-Cola HBC down 73p to 1302p, easyJet down 44p to 1239p, RSA down 13.4p to 430.5p and GlaxoSmithKline down 39p to 1377p.

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