Fresh fears that the eurozone sovereign debt crisis could spread to states such as Italy and Spain sent shockwaves through stock markets today.
The FTSE 100 fell rapidly this morning on fears that the debt contagion could engulf Italy, which is heavily indebted with a sluggish economy.
It and other European markets recovered a little ground later in the day, but the FTSE 100 closed one per cent lower at 5,868.96.
“Investors are in a strong risk off mode, fleeing risky asset classes,” said City Index head of equities Giles Watts. “We have seen higher risk asset classes such as banking and mining stocks across Europe slump as a result.”
Markets calmed after Italy successfully auctioned a tranche of one-year bonds, albeit at high yields.
CMC Markets analyst Michael Hewson blamed “a continued lack of coherency from European policymakers” for the market volatility as a meeting of eurozone finance ministers again failed to reach agreement on how to manage the crisis.
Banks Barclays and Lloyds were among the biggest fallers as the market fretted. Barclays closed down 2.7 per cent while Lloyds finished down 2.2 per cent.
Computer processor ARM Holdings fell most, ending down 4.9 per cent in sympathy with its US peer Microchip Technology, which fell more than 12 per cent after a disappointing trading update.
Builders’ merchant Wolseley fell 3.3 per cent after announcing the sale of its Electric Center business.
And satellite broadcaster BSkyB closed down 3.2 per cent after the government backed a Labour motion to call on Murdoch to withdraw his bid for the company entirely.
Travel-related stocks took a bashing after FTSE 250 travel firm Thomas Cook issued a profit warning that slashed its share price by 30 per cent. Peer TUI Travel fell 7.5 per cent, while British Aiways owner International Consolidated Airlines shed 2.3 per cent.
Some stocks shrugged off the gloom, however. Burberry ended 1.6 per cent higher and M&S finished up 1.2 per cent ahead of both issuing market updates believed to be positive tomorrow.
Retail peer Next Plc was also up 0.9 per cent.
RBS bucked the banking trend to close up 0.8 per cent. Property companies Hammerson and British Land also gained 0.7 per cent and 0.5 per cent respectively.
Commodities giant Glencore also rose, against the broader picture of mining company falls.
US markets also ended in the red. Losses were more limited than in the UK but stocks were not helped by poor trade deficit data that showed surging imports pushing the trade gap to $50bn, over expectations for $44bn.
“In further bad news for the jobs market technology company Cisco today announced the loss of as many as 10,000 jobs as the company struggles to increase its growth in profits,” Hewson said.
The Dow Jones industrial average closed down 58.88 points, or 0.47 per cent, at 12,446.88.
The Standard & Poor's 500 Index finished 5.85 points, or 0.44 per cent lower, at 1,313.64.
The Nasdaq Composite Index ended down 20.71 points, or 0.74 per cent, at 2,781.91.