FTSE in the red on US budget fears

London’s leading shares index took a fresh beating today as continued deadlock over America’s budget deficit added to worries about European debt.

A cross-party panel set up to deliver at least $1.2tn in cuts over the next decade is expected to admit defeat this week, triggering across-the-board cuts that investors fear will impact on US growth and jobs.

The developments in Washington coupled with the intensifying eurozone debt crisis caused the FTSE 100 Index to sink by 2.5% or 140.3 points to 5222.6 – its lowest level since the start of October.

The pound was down against the dollar at 1.57 after the greenback was seen as a safe haven amid the chaos. Sterling was also lower against the euro at 1.16.

Last week, London’s benchmark index fell by around 3% after failing to finish in positive territory in any of the five sessions.

In Europe, ratings agency Moody’s added to the pressure on policymakers by signalling that France’s triple A credit status was under threat.

The wide ranging sell-off saw just one stock, Shire, finish in positive territory, up 3p at 2008p.

Miners bore the brunt of the latest sell-off, particularly after Chinese vice-premier Wang Qishan, who oversees trade and finance, predicted a drawn-out slowdown for the world economy.

Silver miner Fresnillo was down 7% or 118p at 1596p and Kazakhmys slipped 55p to 807.5p.

Lloyds Banking Group was among the biggest fallers in the FTSE 100 Index after it admitted a key executive at Royal Bank of Scotland had gone back on plans to join the company.

Nathan Bostock’s decision to remain as chief risk officer at RBS was announced at the same time as Lloyds detailed contingency plans in case chief executive Antonio Horta-Osorio fails to return from sick leave at the end of this year.

The move, which would see non-executive director David Roberts become stand-in boss, failed to calm investor nerves as shares slumped another 1.8p to 23.4p.

British Gas owner Centrica signed a supply deal worth £13bn at today’s prices with Norway’s Statoil and also agreed to buy £1bn of production assets.

Investec Securities kept its buy rating on the stock and said the moves should help underpin the company’s upstream and downstream operations but shares were down 2.8p at 286.1p.

Outside the top flight, Phoenix Group was 7% higher after the owner of closed life assurance policies said it was in talks with private equity firm CVC about a potential takeover deal.

Talks with Resolution over a potential £1.2bn deal for Phoenix came to nothing but with CVC still in the frame shares in the former Pearl branded business rose 32.9p to 525p.

However, Resolution was the biggest faller in London’s blue chip shares index, down 18.7p at 230.2p

The only Footsie riser was Shire up 3p at 2008p.

The biggest Footsie fallers were Resolution down 18.7p at 230.2p, Lloyds Banking Group off 1.8p at 23.4p, Fresnillo down 118p at 1593p, Kazakhmys off 55p at 807.5p.