The FTSE 100 Index suffered its heaviest daily fall since the July terrorist attacks today as investors fretted over losses in New York.
Concerns over inflation in the United States contributed to the Footsie plunging 66.6 points to 5427.8, while a string of broker downgrades also hit stocks.
This was its worst daily performance since July 7 when the terrorist attacks sparked a mass sell-off of stocks and the index closed 71.3 points lower.
Investors took fright at comments about inflation by a Federal Reserve official in the United States, which fuelled fears over rising interest rates. This left the Dow Jones Industrial Average around 50 points lower by the close of trading in London, after also racking up heavy falls during the previous session.
In London, companies trading in commodities such as metals and oil were hit the hardest. Mining firms shot towards the top of the Footsie fallers board, with Xstrata off 75p at 1389p, Anglo American losing 68p to 1591p and Rio Tinto off 93p to 2214p.
A string of broker downgrades also harmed sentiment, with BP losing 3% or 21p to 634.5p after Credit Suisse First Boston cut its earnings per share estimates by 9% and Smith Barney downgraded the oil giant to a “hold” from a “buy”.
Royal Dutch Shell was also affected as Credit Suisse cut its EPS forecasts by 6%, contributing to the Anglo-Dutch group losing 29p to 1890p. Together, BP and Shell make up around a fifth of the Footsie.
The other constituents of the oil sector – BG Group and Cairn Energy – fared poorly as well and weakened 14.5p and 37p to 514.5p and 1924p respectively.
PartyGaming was the heaviest top flight faller after broker UBS lowered its estimates on a series of companies in the sector. The stock slumped 8% or 7.5p to 86.25p, adding to recent woes triggered by its comments about slower growth.
Pharmacy group Alliance UniChem retreated 18.5p to 831p on downbeat broker comments about its proposal to merge with Boots. Boots fell 9p to 622p.
In contrast, leisure group Whitbread was the highest Footsie riser amid continued bid speculation, sending its shares 20.5p higher to 996.5p.
British Airways was another riser, adding 5.5p to 301.5p as it revealed it carried 3.21 million people on its scheduled services in September 2005 – a 2.8% increase on September 2004.
The news also helped second-tier rival easyJet resist the sell-off today to finish the session 0.75p higher at 299.25p.
However, JD Sports owner John David Group was in the doldrums after it warned of worsened trading conditions since July. Shares weakened 8.5p to 219p.
The highest Footsie risers today were Whitbread up 20.5p to 996.5p, AstraZeneca rising 51p to 2752p, British Airways up 5.5p to 301.5p and Compass Group rising 3.25p to 198.5p.
The heaviest top flight fallers were PartyGaming down 7.5p to 86.25p, Xstrata off 75p at 1389p, Anglo American losing 68p to 1591p and Rio Tinto off 93p to 2214p.