FTSE drops to a six-week low as fears grow over Eurozone debt and Korea

THE leading share index dropped to a six-week closing low yesterday, weighed down by weak banks and commodity issues on worries over the Eurozone debt crisis and rising tensions in the Korean peninsula.

The FTSE 100 ended down 99.55 points or 1.8 per cent at 5,581.28, its lowest close since 4 October.

Banks led the blue-chip fallers, with Standard Chartered the worst off, down 2.7 per cent, as investors already anxious about the Eurozone debt situation were unnerved by the Korea situation and sold out of riskier assets.

North Korea fired dozens of artillery shells at a South Korean island yesterday, killing two soldiers and prompting a return of fire by the South.

Meanwhile, Ireland’s government was on a knife-edge with damaged Prime Minister Brian Cowen challenging the opposition to let an austerity budget pass and trigger an EU/IMF bailout before early elections.

European partners and the International Monetary Fund agreed in principle on Sunday to rescue Ireland with an expected €85bn (£72bn) in loans to tackle a banking and budget crisis.

“Markets are trading ‘risk off’ today on a trifecta of different factors; Irish bailout fears and political uncertainty (and) Korean military tensions,” said Michael Hewson, market analyst at CMC Markets. “This has made for a rather heady cocktail for investors to digest, and has caused significant risk aversion today, with banks and commodity stocks the primary movers to the downside.”

The geopolitical uncertainty combined with Eurozone jitters helped push the dollar higher, hitting metal and crude prices and denting miners and energy stocks.