Blue chips lost almost 2% of their value today after fresh concerns over US sub-prime mortgages saw the London market plunge into the red.
After two sessions of gains, the FTSE 100 Index finished 122.7 points lower at 6271.2 when the market’s fragile recovery was derailed by French bank BNP Paribas, which froze more than £1 billion of funds citing problems in the US sub-prime sector.
There was more turbulence on Wall Street after early selling in the futures market, with the Dow Jones Industrial Average trading more than 130 points lower.
The fears weighed on the UK banking sector, with Barclays off 31p at 681.5p, HBOS down 46.5p to 913p and Royal Bank of Scotland dropping 14.5p to 584.5p, although continued takeover rumours surrounding Alliance & Leicester saw the firm gain 13p to 1120p.
The leading Footsie faller was miner Kazakhmys, down nearly 7%, or 82p, to 1125p after lower copper prices and production problems.
But the insurance sector was also struggling after interim results from insurance giant Aviva, parent of Norwich Union, showed an 8% fall in operating profits.
Shares were down 2p to 703.5p as the cost of claims relating to the June floods offset strong growth elsewhere in the business.
The news impacted fellow insurer Standard Life, which dipped 22.25p to 318.75p, after it also suffered from a broker downgrade from Cazenove. Old Mutual fell 6.5p to 161.4p, Prudential was off 22p at 695p and Royal & Sun Alliance retreated 5.4p to 135.6p.
Other firms suffering losses included energy company International Power, which was off 2%, or 9.75p, to 439.5p despite boasting a rise in first half operating profits and strong growth prospects for the rest of the year.
Analysts said profit-takers had booked gains after recent progress from the stock.
The leading Footsie riser was satellite broadcaster BSkyB, which gained ground despite the news that its £125 million acquisition of Sir Alan Sugar’s Amstrad had been referred to the Competition Commission. The Shares were ahead almost 3%, or 17.5p, at 694.5p.
Better-than-forecast results from defence giant BAE Systems saw the group’s shares surge ahead 3% in early today before slipping back in the falling wider market to close just 4p up at 440.25p.
Other gainers included Currys owner DSG International, which was up 0.8p to 162.4p after upbeat comments on the electrical retailing sector from JP Morgan, although the upgrade did little good for Comet owner Kesa Electricals, which was down 16p to 296p in the FTSE 250.
Elsewhere in the second tier, telecoms testing firm Spirent Communication lost 6% or 4.25p to 65.75p as news of a first half loss caused concern among investors, in spite of hopes for a better second half performance.
The biggest Footsie risers were BSkyB ahead 17.5p at 694.5p, National Grid up 15p at 731.5p, Reckitt Benckiser up 41p at 2774p and Smith & Nephew up 7.5p at 612p.
The biggest Footsie fallers were Kazakhmys off 82p at 1125p, Man Group down 38p at 527p, Standard Life down 22.25p at 318.75p and Daily Mail & General Trust down 45p at 650p.