Fears that Greece will crash out of the euro triggered a global sell-off that left London’s leading shares index at its lowest close of 2012.
The FTSE 100 Index was down nearly 2%, or 100.5 points at 5554.6, after the leader of Greece’s left-wing Syriza bloc said he will try to form a coalition based on tearing up the terms of the country’s bailout deal, which would likely cause chaos by seeing the country ejected from the eurozone.
While it is not certain that Alexis Tsipras will garner enough support to form a coalition, traders fear it is increasingly likely the country will be forced to hold another general election next month, adding to the uncertainty over the its future.
Meanwhile, traders were nervous about the impact of the election of Francois Hollande as French president on the country’s relationship with Germany, which has been at the heart of the eurozone’s efforts to deal with the debt crisis.
The turmoil wiped £26bn from the value of London’s blue chip shares index, while the Dow Jones Industrial Average was down more than 1% as the London market closed. The Dax in Germany was down nearly 2% and France’s Cac-40 was 3% lower.
The pound rose to a three-and-a-half year high against the euro, at 1.24, as the single currency was sold off amid the gloom, prompting experts at Caxton FX to forecast a level of around 1.30 by the autumn.
But sterling was down at 1.62 against the dollar, reflecting the greenback’s status as a safe haven currency.
Banks were among the biggest losers amid the eurozone uncertainty, with Lloyds Banking Group down 1.5p at 31.1p and Royal Bank of Scotland 1p lower at 23.5p
And HSBC shares were 6.5p lower at 558.6p despite its investment banking and emerging market operations helping it post a 30% rise in first quarter operating profits compared with the previous three months.
In corporate news, Aviva chief executive Andrew Moss announced his surprise departure in the face of another bout of shareholder activism.
His decision to stand down with immediate effect came a week after investors staged a massive protest vote against Aviva’s annual pay report. Shares were up 0.6p at 302.9p but had been as much as 5% higher.
Meanwhile, in the FTSE 250 Index, TUI chief executive Peter Long said booking trends for the summer remained healthy amid decent demand for all-inclusive holidays.
However, shares were down 6.1p at 183.7p as it revealed an operating loss of £317m for the seasonally quieter six months to March 31, up from £307 million the previous year.
It was also put in the shade by developments at rival Thomas Cook, whose shares jumped 2%, up 0.5p to 21.5p, after the debt-laden company agreed a £1.4bn deal with lenders including Royal Bank of Scotland and Barclays to extend the maturity of its bank loans to 2015.
The biggest Footsie risers were Tullow Oil up 48p at 1517p, Land Securities ahead 13p at 742p, Tesco up 4.3p at 323.5p and Hammerson ahead 4.9p at 415.9p.
The biggest Footsie fallers were Polymetal International down 76.5p at 806.5p, Fresnillo off 112p at 1394p, Man Group down 6.3p at 82.5p, and Randgold Resources off 347p at 4773p.