The FTSE 100 Index tumbled 1.7% today as commodity stocks fell and US unemployment claims gave investors the jitters.
The London index was pushed back towards the 5000 mark after disappointing economic news from across the Atlantic, despite an International Monetary Fund (IMF) report that said the world economy was reviving more quickly than expected.
The Footsie has just come out of the best quarter in its history, but waning confidence saw the index close down 86.1 points at 5047.8 today.
Falls were accelerated later in the day after a raft of US data saw Wall Street take a hit.
The Dow Jones Industrial Average was down almost 1.5% in early trade after unemployment benefits were shown to have increased more than expected last week.
US unemployment figures are due out tomorrow and analysts believe today’s falls are partly down to investor nerves.
London had enjoyed earlier strength as the IMF forecasts included a much stronger prediction of UK growth in 2010, although this was offset by a separate study showing a disappointing manufacturing performance in September.
In corporate news the prospect of a Serious Fraud Office prosecution over bribery allegations sent BAE Systems 4% lower as investors scurried for the exit.
The defence firm lost 15.2p to 334p after the move, which follows an SFO investigation into its business activities in Africa and Eastern Europe.
Commodities stocks were also on the back foot amid a fall for oil prices.
Miners suffered sharp falls which weighed down on the London market, with Lonmin down 136p at 1538p after a downgrade from Deutsche Bank. Xstrata was also down 50.5p at 872p and Anglo American fell 107p to 1886p.
The oil price fall put pressure on BP, off 12p to 541p, despite another discovery in Angola. Rival Royal Dutch Shell lost 22p to 1714p.
Property firm Segro was also a victim of the brokers, off 20.2p to 347.3p after Goldman Sachs cut it to sell amid worries over the recovery potential of its industrial portfolio.
One miner on a winning streak was Vedanta Resources, which pushed up 46p to 1948p or 2% after Morgan Stanley said the shares could potentially double.
Another beneficiary of positive broker comment was heating and plumbing firm Wolseley, 14p better at 1521p after Citi upgraded it to buy.
Meanwhile insurer Legal & General again benefited from speculation of takeover interest, possibly from National Australia Bank, and added 0.15p to 87.95p.
In the FTSE 250 Index, dairies firm Robert Wiseman was a top riser after it said half-year profits were likely to be ahead of management expectations. Shares surged more than 3% or 14.4p to 435p
Domino’s Pizza made a similar optimistic statement about its full-year results. Shares gained 6.1p to 298.1p as a result.
The biggest Footsie risers were Home Retail Group up 7.3p at 279.2p, Vedanta Resources up 46p at 1948p, Friends Provident up 1p to 84.2p and Wolseley up 14p to 1521p.
The biggest Footsie fallers were Lonmin down 136p to 1538p, Segro down 20.2p to 347.3p, Xstrata off 50.5p at 872p and Anglo American down 107p to 1886p.