A bigger than expected fall in earnings at leading US investment bank Goldman Sachs sparked a rout among investors across all sectors.
Earlier in the day, more bad news from UK retailers depressed stocks across the sector, on both the FTSE 100 and 250.
“The earnings from Goldman Sachs, typically seen by most as one of the pinnacle investment banks in the world, have hurt investor sentiment today, particularly those hoping for a strong set of earnings from UK banks like Barclays, whose shares subsequently bore the brunt of the reactive selling,” said Joshua Raymond, Market Strategist, City Index.
Manoj Ladwa, senior trader at ETX Capital, said it was unusual to see the FTSE sharply lower on a day when US indices were holding their ground.
“What started off as light profit-taking has turned into a bit of a rout,” he said. “Stubbornly high unemployment numbers in the UK along with disappointing fourth quarter results from Goldman Sachs has left traders on the back foot.”
Publisher Pearson was the top gainer, closing up 4.47 per cent at 1,051p after it raised its profit forecast for the second time in three months. It expects 2010 full year operating profit of about £850m – about 20 per cent higher than in 2009.
Other stocks made far smaller gains, but those that benefited included pharmaceutical giant GlaxoSmithKline, which added 0.8 per cent to end at 1,191.00p; household goods manufacturer Unilever, 0.26 per cent up at 1,895p; and Essar Energy, which finished up 0.94 per cent at 538.00p.
Imperial Tobacco saw the biggest fall, losing 3.2 per cent after going ex-dividend.
Barclays lost ground to close down 3.77 per cent at 296.15p after the market digested news that the FSA fined it £7.7m and demanded it pay £60m compensation to investors for mis-selling funds.
Royal Bank of Scotland also fell 1.28 per cent or 0.55p to close at 42.34p.
“Automotive shares dropped after European competition authorities announced a cartel investigation into lorry manufacturers, and automotive part manufacturer GKN has slipped lower on the back of that,” said Michael Hewson, market analyst at CMC Markets.
Software firm Autonomy fell in spite of announcing two contract wins, as investors feared the company had no further good news before its fourth quarter results, announced on 1 February.
On the FTSE 250, bookies William Hill jumped 6.96 per cent to 189.00p after saying its full-year results would be at the top end of expectations.
Rival bookie Ladbrokes rose 2.42 per cent in sympathy to 135.30p.
Sugar firm Tate & Lyle also hit the top ten gainers, climbing 4.93 per cent to 135.3p after rumours of a takeover bid at about 750p a share from a rival likely to be US foods group Cargill.
JD Wetherspoon pub chain was also up 5.21 to 464.70p after it announced better than expected second-quarter sales despite the snow.
But Kesa, Europe's third largest electricals retailer, fell 9.81 per cent to 136.00p after warning that adjusted pre tax profit may be at the lower end of expectations.
And HMV tumbled 2.9 per cent to close at 25.5p after admitting credit insurers had reduced the cover they were prepared to give its suppliers.