FTSE dragged down by weak oil prices

London’s leading shares lost 2% today as weaker oil prices and fresh fears over the US economy rocked investors.

The FTSE 100 Index plummeted through the 6,500 barrier, falling 125.7 points to 6498.7 – its lowest close since May.

The pressure on London’s blue-chips came from a third successive day of lower oil prices, while Wall Street was shaken by the country’s largest mortgage lender, Countrywide Financial, reporting profits down by a third.

Only five stocks remained in positive territory today as trading screens turned red.

Power station operator British Energy was the leading faller, down 4.5% or 24p to 509p, with Drax also sustaining heavy losses, off 28p at 700.5p.

The heavily weighted oil majors also dragged the market down, with BP off 11.5p at 590p, despite delivering second quarter profits at the top end of market expectations.

Royal Dutch Shell, which will publish results on Thursday, fell 56p to 2009p.

Other companies on the back foot included platinum distribution group Johnson Matthey, with the speciality chemicals group off more than 3% – down 56p at 1746p – after a trading update left analysts disappointed.

Consumer products group Reckitt Benckiser headed a shortened Footsie risers board, up 31p at 2748p, as investors bought into the firm ahead of figures from the company tomorrow.

Yell joined the firm in positive territory after a first quarter update reassured the City over prospects in the United States, where the business has been squeezed by increased competition.

The Yellow Pages firm said it was confident of tackling the threat, causing shares to finish 3.25p ahead at 472.5p.

Retailers were also under pressure, largely due to a gloomy 2008 earnings outlook from Sports World owner Sports Direct International, which highlighted “exceptionally difficult” trading conditions and said earnings were set to see limited growth over the year ahead.

Shares in Sports Direct fell nearly 23%, or 43p to 147p, in the FTSE 250 Index.

Back in the top flight, Argos owner Home Retail Group fell 14.5p to 427.25p, Next slipped 51p to 1867p and B&Q owner Kingfisher was down 5p at 217.5p.

Among the miners, Lonmin fell 145p at 3590p and Anglo American dipped 124p to 3133p. BHP Billiton was also off 25p at 1492p, despite giving a positive update.

Business outsourcing firm Capita also failed to woo investors with its strong interim results and promise of a special dividend. Shares were off 27p, or 4%, at 743p.

Elsewhere, shares in Friends Provident lost some of their strength a day after revealing talks with Resolution over a possible merger.

The stock surged 8% yesterday on hopes of further bids, but Friends was today down more than 2%, or 4.5p at 196.5p.

The biggest Footsie risers were Reckitt Benckiser up 31p at 2748p, Imperial Tobacco ahead 18p at 2313p, Yell Group up 3.25p at 472.5p and Man Group ahead 4p at 613.5p.

The biggest fallers were British Energy down 24p at 509p, Old Mutual off 6.9p at 168.7p, Lonmin down 145p at 3590p and Drax off 28p at 700.5p.