FTSE hits lowest in over a year as volatility increases

THE FTSE 100 fell for the seventh consecutive trading day yesterday, with investors continuing to drop stocks in favour of safer assets, unconvinced that governments and central banks have a grip on the global debt crisis.

Miners, banks and integrated oil stocks led London’s blue-chip index down 178.04 points, or 3.4 per cent, to 5,068.95, its lowest closing level since 7 July 2010.

The FTSE volatility index, a gauge of investor fear, shot up more than 28 per cent yesterday, having risen all last week.

The sell-off since 29 July wiped $3.4 trillion off the value of world stocks, a sum equivalent to Germany’s GDP. But the retreat on equity markets is still some way less pronounced than the crashes 2008 or 1987.

The European Central Bank yesterday bought Spanish and Italian bonds to halt contagion from the debt crisis in the peripheral Eurozone nations, but that only briefly delayed a sell-off from a cut in the US credit rating by Standard & Poor’s after the markets closed on Friday.

There was further concern over the health of the world’s biggest economy after a gauge of the US job market declined in August.

Weir fell 8.7 per cent, with traders citing a downgrade by Morgan Stanley hitting the engineer’s shares.

Analysts also said liquidity was playing a major role in the decline of Weir’s shares, which have fallen more than 27 per cent in the last 10 trading days.

Citigroup said the market was pricing in a 27 per cent earnings per share downgrade to its 2012 forecasts for the engineering sector.

Gold soared to all-time highs as investors fled to safety.

As an equity proxy for the precious metal, Randgold Resources, the only blue-chip riser, added 7.4 per cent, also supported by an upgrade in its investment rating by Deutsche Bank.