Dismal housing data from the US fuelled fears of a slowdown in global economic recovery today, rattling investor confidence and triggering a slump in stock markets.
Figures released by The National Association of Realtors reported an unprecedented drop in sales last month of previously occupied homes in the US. Total sales were down 27.2% to 3.83 million, far below the predicted 4.6 million.
The effect of the uncertain economic outlook rippled across the Atlantic, where the London market closed 79 points down or 1.5% to 5156.
As the FTSE 100 Index closed, Wall Street’s Dow Jones Industrial Average was down just under 1%, while the Nasdaq Composite was off just under 1% and the Standard & Poor’s 500 Index declined just over 1%.
Traders’ nerves are unlikely to be soothed anytime soon, with further US figures on durable goods orders, consumer confidence and revised second quarter GDP due later this week, as well as the latest speech on the state of the US economic recovery from Federal Reserve chairman Ben Bernanke.
Economic woes at home were compounded by a fall in the value of the pound, triggered by comments made by Bank of England economist Martin Weale, who warned that Britain faces a “significant” risk of a double-dip recession. Sterling fell against the US dollar to 1.54 and against the euro to 1.21.
The fears over weaker demand meant resources stocks dominated the blue-chip fallers board, with Vedanta Resources off 8% or 155p to 1882p and Kazakhmys down 45p at 1091.4p. There was further weakness for BP, which declined 13p to 377.5p in a fresh slide for the oil major despite the end of the Gulf of Mexico oil spill.
The economic nerves also overshadowed upbeat results from media and advertising firm WPP after it raised its revenues outlook for the full year due to a stronger-than-expected turnaround in North America.
Chief executive Sir Martin Sorrell also said major global economies were likely to avoid a double-dip recession, but this was not enough to lift the downbeat mood of investors as shares fell 26.5p to 644.5p.
Building supplies firm Wolseley, which is heavily exposed to the US economy, also fell 67p to 1239p on the day that it announced a £43m (€52m) deal to sell its Brandon Hire tool business.
Analysts expect further disposals after a review by Wolseley put 19 firms on a list of operations to improve or sell.
In other corporate results, housebuilder Persimmon was buoyed by news that it restored its dividend payments and said it was cautiously optimistic about prospects following higher half-year profits of £39.4m (€48m). Shares recovered from falls earlier in the session and closed 1.5p up at 348.1p.
Borrowings also reduced sharply as the company focused on improved selling prices, rather than chasing higher volumes.
Punch Taverns shares were 7.2p higher at 85.4p after an improved trading performance in its managed pubs estate led it to forecast full-year profits marginally ahead of its previous expectations.
The biggest Footsie risers were Associated British Foods, up 35p to 1051p, Compass Group, ahead 9p to 513.5p, Old Mutual, up 2.1p to 127p, and Burberry Group, up 11p to 848.5p
The biggest Footsie fallers were Vedanta Resources, down 155p to 1882p, Wolseley, off 67p to 1239p, Legal & General, down 4.6p to 90.8p, and Rio Tinto, off 141.5p to 3161.5p.