FTSE 100 index drops towards 5000 mark

London’s top stocks lost another 1% today as worries over US and European economic health sparked a sell-off for the second session in a row.

The FTSE 100 Index dropped towards the 5000 mark – at levels not seen since last November – after heavy falls on Asian stock markets overnight.

Blue-chip shares in London lost over 2% yesterday as investors took fright at the precarious financial position of some European countries, such as debt-laden Greece and Portugal.

The European Commission approved a turnaround plan for the Greek economy this week involving savage cuts – but this has prompted a wave of strike action and stock exchanges across Greece, Portugal and Spain came under heavy pressure.

A surprise rise in initial claims for US jobless benefit – the fourth in five weeks – disappointed markets and added to worries over a sluggish recovery from recession.

Yesterday’s fall alone wiped more than £29bn (€33bn) from leading shares and the index has now lost around 9% since hitting 5600 in early January.

Richard Hunter, head of equities at Hargreaves Lansdown, said: “Fears of sovereign risk contagion within Europe, combined with some more mixed US corporate numbers, are continuing to add to investor unease across global markets.”

Wall Street ended the day down 2.6% yesterday, having briefly trading below 10,000 for the first time in three months.

Fresh jobs numbers from the world’s biggest economy could also hit investor sentiment today. A January unemployment report is expected to be accompanied by an estimate of jobs lost in the year the ended in March 2009 – predicted to rise by roughly 800,000, raising the number of jobs shed during the recession to around eight million.

Oil prices dropped below $73 a barrel, adding to a big slide overnight, while the dollar continued to gain against the pound, which was at its lowest since May.

Commodities and financial stocks were out of favour in London again today, having been at the forefront of yesterday’s losses.

Energy company BG was down more than 4% despite beating expectations for its fourth quarter results.

Meanwhile miners littered the fallers board, led by a near 4% tumble for Xstrata. Banks were also out of favour amid the investor jitters and Lloyds Banking Group shed around 3%.

Just a handful of stocks were left in positive territory.

British Airways was one of the few risers after its third quarter losses of £50m (€57m) were smaller than analysts had expected.

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