FTSE plunges into the red as market closes

The London market plunged into the red today after heavy early losses on Wall Street and fresh doubts over mortgage lenders sent blue chips tumbling.

After a five-day winning run, the FTSE 100 Index lost 106.1 points to 6270.7 - a 1.7% fall wiping more than £25 billion off the value of leading companies.

Northern Rock and Alliance & Leicester were among the biggest sufferers after a downbeat broker note on the mortgage market’s prospects amid soaring wholesale lending costs.

Meanwhile in the US, pending homes sales fell to their lowest levels for six years, sending Wall Street’s Dow Jones Industrial Average spiralling downwards.

Fresh nerves over the current credit crunch also filtered through to markets after the Bank of England said it would boost reserves available to banks to ease pressure on overnight lending rates, but added that it would not act to ease more expensive long-term interbank borrowing.

Mortgage bank Northern Rock was top of the fallers board – falling more than 5%, or 39p to 693p, after Lehman Brothers downgraded the group, citing fears that the whole sector will be impacted by increases in interbank lending rates, which have hit near 10-year highs.

Alliance & Leicester was also downgraded in Lehman’s note, seeing shares fall 47p at 1011p, despite moves by A&L yesterday to reassure over its US sub-prime mortgage exposure. The company also turned ex-dividend, meaning shareholders are not entitled to the latest dividend.

Other financial stocks under pressure included investment manager Man Group, off 18.75p at 489.25p, and inter-dealer broker Icap, down 15p to 498p. Barclays fell 17p to 620.5p, with HSBC 16.5p lower at 881.5p.

Major retailers also fared badly after a Nationwide survey revealed consumer confidence and spending declined in August after recent interest rate hikes.

Morrisons led the pack, off 10.75p at 280.5p, followed by Tesco down 8.75p at 428.25p and Sainsbury’s, down 8.5p at 547p.

Among other retailers shares in Argos owner Home Retail Group declined 8p to 421.5p and clothing chain Next fell 48p to 1925p.

Just three firms finished the session in positive territory. Vedanta Resources was the leading performer, up nearly 3%, or 55p, to 1847p, after an upgrade for the sector from Merrill Lynch and another favoured stock, Lonmin, moved ahead 12p to 3227p.

Property group Land Securities lost earlier gains to finish unchanged at 1837p after revealing it was considering a break-up of the group.

Foster’s brewer Scottish & Newcastle meanwhile was 6.5p off at 626p after losing advances made in the previous session when the bid rumours surrounding the stock re-emerged.

In the FTSE 250, construction and support services group Carillion increased earlier losses to stand 14p lower at 419p despite positive interim results.

UK Coal was another firm which failed to lift its stock with positive numbers, with shares off 14p at 549p despite the company almost trebling pre-tax profits in interim figures.

The Footsie risers were Vendanta Resources up 55p at 1847p, Shire ahead 8p at 1303p, and Lonmin up 12p 3227p.

The biggest Footsie fallers were Northern Rock down 39p at 693p, Tate & Lyle off 25.5p at 536.5p, Alliance & Leicester down 47p at 1011p and Royal & Sun Alliance off 5.6p at 139.9p.