London markets sag in the heat but Diageo refreshes

THE FTSE 100 closed 2.5 per cent lower yesterday, with market sentiment hit by data showing US employers cut more jobs than expected in June and unemployment in Europe hit a 10-year high.<br /><br />The index ended down 106.44 points at 4,234.27 after closing 2.2 per cent higher on Wednesday, the first day of the new quarter.<br /><br />The energy sector, which gained in the previous session on higher oil prices, took the most points off the index as crude fell more than $2 to trade below $67 a barrel.<br /><br /><strong>BP, Royal Dutch Shell, BG Group</strong> and <strong>Tullow Oil</strong> fell 1.9 to 3.3 per cent.<br /><br />Lower metal prices helped push miners down, shedding some of the recent gains.<br /><br /><strong>Randgold Resources, Eurasian Natural Resources, Anglo American, Lonmin</strong> and <strong>BHP Billiton</strong> fell 3.1 to 4.7 per cent.<br /><br /><strong>Rio Tinto</strong> fell 5.7 per cent. It completed the British leg of its $15.2bn (&pound;9.3bn) rights offer, putting the world&rsquo;s top iron ore miner back into growth mode after slashing its debt.<br /><br />Data showed a decline in activity in the construction sector accelerated in June, and lenders said they did not expect much of a pick-up in demand in the third quarter.<br /><br />Figures showing the jobless rate in the 16-nation euro zone rose to 9.5 per cent in May, the highest since 1999, also weighed on the FTSE.<br /><br />&ldquo;I certainly think unemployment will continue to rise over the next few months and maybe into next year, and this will bring its own negative impact on aggregate demand,&rdquo; said Jeremy Batstone-Carr, analyst at Charles Stanley.<br /><br />The fall in equity prices was broad-based, with defensive drugmakers and banks also among those into negative territory.<br /><br /><strong>AstraZeneca, GlaxoSmithKline</strong> and <strong>Shire</strong> fell 2.4 to 2.8 per cent.<br /><br />Heavyweight <strong>HSBC</strong> was 1.8 per cent lower, while <strong>Lloyds Banking Group, Royal Bank of Scotland</strong> and <strong>Standard Chartered</strong> fell 2.1 to 3.4 per cent.<br /><br /><strong>WPP Group</strong> slipped 7 per cent, the biggest loser on the index, as Citigroup downgraded the advertising group&rsquo;s rating to &ldquo;sell&rdquo; from &ldquo;neutral&rdquo; with a reduced target price of 340p, down from 440p.<br /><br />With most stocks down on the day, the world&rsquo;s biggest spirits group <strong>Diageo</strong> topped the risers chart, up 0.9 per cent, as traders continued to view its decision, announced on Wednesday, to close two Scottish plants as a good cash saving move in the current downturn which is hitting the sector hard.