FTSE down 1.5%

Fears that the European Central Bank will fail to prescribe the medicine needed for the ailing eurozone triggered big losses on London's leading shares index today.

FTSE down 1.5%

Fears that the European Central Bank will fail to prescribe the medicine needed for the ailing eurozone triggered big losses on London's leading shares index today.

The FTSE 100 Index closed 1.5% or 86.4 points lower at 5672 ahead of the ECB's policy announcement on Thursday, despite encouraging comments from ECB President Mario Draghi yesterday that buying certain government bonds would fall within the bank's mandate.

Meanwhile, US manufacturing figures added to the gloom, shrinking for the third straight month as new orders, production and employment all fell.

The Institute for Supply Management, a trade group of purchasing managers, said its index of manufacturing activity ticked down to 49.6, below the 50 growth mark.

Dismal construction figures for the UK further dampened the mood as a purchasing managers index revealed an unexpected fall last month, while more upbeat services data were not released until after the market closed.

The pound was up against the US dollar at 1.58 following the US manufacturing data, while sterling was also ahead against the weakened euro at 1.26.

In London, telecoms group Vodafone added to pressure on the wider market amid fears over its ability to meet its revenues targets for this year.

City firm Bernstein cut its earnings forecast for the mobile phone giant as it expects service revenues to turn negative for the first time since March 2010.

Vodafone is one of the London market's most influential stocks and saw its shares drop 4.8p to 178.5p.

Tobacco firms came under significant pressure amid reports that Russia, the world's largest tobacco market after China, will submit a law banning smoking in public places by November 1.

Lucky Strike owner British American Tobacco was 63p lower at 3270.5p, while Embassy and Lambert & Butler firm Imperial Tobacco was 38p down at 2449p.

There was an element of profit taking after a decent session yesterday, with Royal Bank of Scotland among those struggling as a broker downgrade prompted a drop of 5.8p to 220.7p. Fashion label Burberry was 40p lower at 1315p and Next slipped 73p to 3571p in a disappointing session for the retail sector.

In corporate news, pub companies Greene King and Spirit Pub Company posted resilient updates in the face of Olympics disruption.

Greene King, which operates 2,300 outlets including Hungry Horse and Loch Fyne Restaurants, said underlying sales rose a "reassuring" 5.1% in the past 18 weeks, helping its shares rise 10p to 573.5p.

And there was a similar story at Spirit - the owner of the Chef & Brewer and Fayre & Square brands - which saw sales at its managed estate rise 4.1% in the 12 weeks to August 18. Shares were initially higher before closing 1.5p lower at 55.5p.

The best performance in the FTSE 250 Index came from equipment rental firm Ashtead, which said results for the year to May will exceed its expectations after record first quarter underlying profits.

Conditions in the UK, where it operates as A-Plant, have been more challenging but the US saw a gentle improvement. Shares jumped 12% or 33.4p to 315.9p.

The biggest Footsie risers were Morrisons up 0.9p at 279.1p, Diageo ahead 3p at 1754p and Petrofac up 2p at 1518p.

The biggest Footsie fallers were ARM Holdings down 31.5p at 528p, Evraz off 8.9p at 218p, Weir Group down 59p at 1580p and Admiral off 40p at 1110p.

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