US economy fears prompt further FTSE misery

Investors in the UK endured further stock market misery today as fears over the US economy sparked another sell-off.

London’s benchmark FTSE 100 Index tumbled 122.1 points to 6191.2 – a fall of nearly 2% wiping £29 billion from the value of the UK’s leading companies.

The collapse was triggered by US figures showing a fall in employment for the first time since 2003 – fuelling concerns that the US economy could slip into recession.

Analysts expecting an increase of 100,000 jobs in August were stunned by the data from the US Department of Labour, which showed 4,000 jobs lost during the month.

Wall Street’s Dow Jones Industrial Average lost more than 200 points in early US trading after the figures were released.

In London, financial stocks including Royal Bank of Scotland and Barclays lost more than 4%. Airline British Airways – a company with significant exposure to the US economy – was the leading Footsie faller, dropping more more than 5%.

Experts said the US Federal Reserve was now almost certain to cut interest rates from 5.25% at its meeting later this month.

Martin Slaney, head of spread betting at GFT Global Markets, said: “To see a negative figure – a loss of jobs – is bleak at the best of times; for this to happen now is dreadful timing.

“I think now it’s more a question not of if the Fed cuts rates, but when and how much.”

Steadily-rising interest rates from a low of just 1% in 2003 have seen spiralling default levels among higher-risk borrowers in the US who have struggled to keep up with rising repayments.

This has been a factor behind the recent turmoil in world markets as investors panic over the potential exposure of banks and other financial institutions to US sub-prime mortgages.

The Footsie was trading at seven-year highs in July above the 6,700 mark before the turmoil began.

ING Bank economist Rob Carnell described the jobs figures as “downright awful” and said the Fed could move to cut interest rates by 0.5%.

He added: “To do anything short of this could only lead to market disappointment, and further worsening in already turbulent financial markets.”