Biggest one-day FTSE 100 fall in more than two years

BRITAIN’S top shares dropped yesterday in their worst one-day fall since March 2009, led by banks on concern the growth outlook for global economies was slowing and worries about contagion in the Eurozone debt crisis.

Stocks extended falls after August factory activity in the US Mid-Atlantic region dropped to its lowest level since March 2009, adding to earlier worries the US economy was slowing down following higher than expected weekly jobless claims.

Not a single FTSE 100 stock closed up after yesterday’s trading.

Banks tumbled to become the worst performers, with the down 6.9 per cent – also its biggest daily drop since late March 2009.

Barclays, Royal Bank of Scotland and Lloyds Banking Group dropped 9.3 to 11.5 per cent.

“The banks are plugged into the Eurozone sovereign debt crisis,” said Mike Lenhoff, chief strategist at Brewin Dolphin.

“But it is not just worries about the Eurozone, it is growth in the United States as well.

“The concern is that global economies will go back into recession, and downgrades to economic growth are likely to translate into cuts to earnings.”

The UK benchmark index closed down 239.37 points, or 4.5 per cent at 5,092.23, knocking about £60bn off the index, with volume 132 per cent of its 90-day daily average.

The index has slumped 16.3 per cent since the July to August sell-off began and made its biggest one-day drop since 2 March 2009.

It also dropped below both the 38.2 per cent retracement or 5,284.96 and 23.6 per cent retracement or 5,096.17 of its July to August sell-off, with the next support level seen at the psychological 5,000 mark.

Investors had early yesterday been concerned about a slowdown in the United States and Europe after Morgan Stanley cut its global growth forecast for 2011 and 2012 citing both regions as “dangerously close to a recession”.

“The anaemic post-recession recovery and the pronounced market volatility indicate that both the US and parts of Europe are on an unsustainable path,” said Jack Malvey, chief global market strategist for BNY Mellon Asset Management.

“The worst case would be a mild, brief recession, but we are more likely to experience a low-growth recession over the next three to six months.”

Also compounding the worries early on that the global recovery was losing steam was news that Deutsche Bank had cut its expectations for Chinese GDP growth due to the slowing economic environment in the United States and Europe.

Commodity stocks, whose performance is strongly correlated to global growth, were also among the worst performers, tracking crude and base metal prices lower.

Of the mining stocks Xstrata was the hardest hit, losing 10.2 per cent, while Cairn Energy fell the most among the oils, down 8.7 per cent. Glencore also dropped 10 per cent.

Strong orporate results did little to cushion stocks from the wider market fall – Cineworld, for example, fell one per cent despite progress on its refurbishment plan and a rosy outlook for the year.