China fears hit FTSE

Fears that China will raise interest rates in a bid to cool its economy put world markets under pressure today amid sharp falls for mining stocks.

Investors were also disappointed by the lack of firm action from G20 leaders in South Korea, although countries were at least able to pledge that they would avoid the “competitive devaluation” of currencies.

The FTSE 100 Index slid more than 1% at one stage but recovered to stand 12.8 points lower at 5802.3 after EU ministers moved to calm bond market jitters over a possible bailout of Ireland.

Their comments addressed concerns that private investors would have to bear a share of the burden in future bailouts of countries in fiscal crisis.

The fears that Ireland might soon be forced to follow Greece in turning to international financial support have plagued the London market all week. Today, the spread on Irish bond yields narrowed after earlier reaching record highs.

Royal Bank of Scotland, which has been hit by worries over its exposure to Ireland’s debt crisis, rallied 1.3p to 42.3p.

Other risers included Rolls-Royce after it appeared to identify the cause of the engine failure that forced a Qantas A380 superjumbo into an emergency landing last week.

It revealed that a component in the turbine of the engine sparked an oil fire and led to the release of another part – a turbine disc.

Rolls said the event will have an impact on financial results this year, but investors were relieved at signs of progress in the Qantas inquiry as shares in the under-pressure company improved 25p to 609p.

Utility stocks were also higher after British Gas owner Centrica became the latest firm to increase prices for domestic electricity and gas customers.

Faced by a 25% hike in wholesale costs in the last year, Centrica will increase its tariffs by 7% on average from next month. Shares were 3.7p higher at 339.7p, while Scottish & Southern Energy added 24p to 1167p, Severn Trent lifted 14p to 1450p and United Utilities added 4.5p to 629p.

Elsewhere in London, the pressure on mining stocks caused by fears of Beijing rate hikes meant Kazakhmys fell 41p to 1510p, Antofagasta dropped 34p to 1438p and Lonmin dipped 42p to 1747p.

Outside the top flight, shares in model railway firm Hornby rose 2.9p to 150.8p as it offset a drop in half-year profits by saying it was well-placed for Christmas trading.