By Sudip Kar-Gupta
LONDON (Reuters) - Britain's top shares index (FTSE) fell on Friday, led lower by banks and homebuilders, but staged a sharp recovery from its initial slump caused by the country's decision to leave the European Union.
The FTSE 100 index initially dived more than 8 percent at the open, and was poised to post its sharpest one-day drop since the aftermath of the Lehman Brothers collapse.
The FTSE 100 clawed back ground to finish 3.2 percent lower at 6,138.69 points. Trading volumes were nearly five times their daily average.
Following the initial scramble in morning trading, markets were reassured by statements from policymakers, and investors stepped in to pick up shares of blue-chip dividend-paying, defensive companies such as GlaxosmithKline (L:GSK) and AstraZeneca (L:AZN)
Moreover, sterling's sharp drop also helped the shares of exporters such as Unilever (L:ULVR), Diageo (L:DGE) and Rolls Royce (L:RR)
The index eventually ended the week posting a gain of some 2 percent, having risen sharply earlier in the week on expectations Britain would stay in the EU.
Banks and housebuilders, sectors seen to be most at risk from a weaker UK economy, remained the day's worst performers. Taylor Wimpey (L:TW) fell 29 percent while Lloyds (L:LLOY) and Barclays (L:BARC) slumped 21 and 17.7 percent respectively.
Several traders said one principal reason for the recovery over the course of the day included a pledge by Bank of England governor Mark Carney to support the market.
"Carney's comments helped the market back up," said Berkeley Futures' head of trading Charles de Roeper.
They added a slump in sterling
"All the FTSE 100 companies, except for financials, with majority earnings outside the UK are boosted by the substantial fall in sterling which will inflate overseas earnings in the next results," said Lorne Baring, managing director at B Capital Wealth Management in Geneva.