FTSE loses ground

Central bankers failed to soothe the nerves of investors today after key reports highlighted the global economy's fragile recovery prospects.

Central bankers failed to soothe the nerves of investors today after key reports highlighted the global economy's fragile recovery prospects.

The FTSE 100 Index shed more than 1.5% - off 84.3 points to 5292.2 - after the Federal Reserve downgraded its economic outlook and began using proceeds from mortgage bonds in an effort to keep borrowing costs low.

Asian markets were also lower after new figures showed China's industrial growth slowed further in July.

Bank of England governor Mervyn King added to uncertainty by downgrading growth forecasts and warning that the UK faced "a choppy recovery".

The pound weakened against the US dollar as analysts said the Bank's inflation report suggested interest rates were unlikely to rise any time soon.

Miners and banking stocks bore the brunt of the sell-off, with Lloyds Banking Group off 3.05p to 72.1p and Rio Tinto 10.35p lower at 3284p.

A shortened risers board featured a number of defensive stocks as investors dived for cover amid the economic uncertainty. The risers included Imperial Tobacco, which lifted 2p to 1807p.

The session saw more turbulence for holiday companies after Thomas Cook said profits will be at the lower end of market hopes.

Shares fell 2.4p to 181.5p in the FTSE 250 Index while Thomson owner TUI Travel dropped another 8.9p to 194.2p after issuing a similar warning yesterday.

Elsewhere, Standard Life shares were lower despite a 10% rise in half-year operating profits and 4.8% increase in its half-year dividend. The figures were in line with expectations but analysts said the pay-out to shareholders came in short of estimates, prompting shares to fall 6p to 210.4p.

Prudential, which is due to round off a decent results season for the sector with a rise in its half-year dividend tomorrow, fell 9.5p to 573p.

Outside the top flight, building giant Balfour Beatty rose 1.5p to 264.4p after its order book rose to £14.6bn (€17.62bn) in the first half of 2010.

This was despite a fall in sales at its construction arm as a clampdown on costs helped underlying pre-tax profits across the group jump 32% to £141m (€170.17m) during the period.

Meanwhile, building services firm Rok slumped 42% - down 12.25p to 16.75p - after it said it had uncovered "serious failings" in financial controls at its plumbing and heating division.

The problems, which were revealed after an independent review, will have a material adverse impact on profits this year.

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