Leading shares suffered their biggest daily fall since the middle of October, hit by renewed fears about the global economy, uncertainty in Greece following snap presidential elections and a surprise profit warning from Tesco.
The FTSE 100 finished 142.68 points or 2.14% lower at 6529.47 as a combination of worries unsettled investors. The Athens market recorded its biggest one day fall since 1987, with the country failing to exit its bailout amid uncertainty over its political future after the election news.
Meanwhile Chinese shares fell sharply in the wake of Monday’s disappointing trade data, showing a drop in imports, and a clampdown on its corporate bond market, while Japan was revealed to be deeper in recession than expected.
Wall Street joined in the global declines, down 158 points by the time London closed.
Jasper Lawler, market analyst at CMC Markets UK, said:
Markets don’t like surprises but had three big ones on Tuesday that sent European shares for a tumble. China shocked markets by tightening credit conditions by raising collateral standards on loans only weeks after loosening conditions by cutting interest rates. At the same time Greece announced it will bring forward its Presidential election to this month and Tesco announced a big surprise profit warning.
Chinese regulators have made lower-rated bonds ineligible as collateral for loans in an attempt to block the rise of margin trading and short selling. Chinese authorities are engaging in selective tightening and easing within the economy attempting not to reinflate the housing/credit bubble but also support growth in key areas needed to boost domestic consumption.
Meanwhile Tesco fell 12.4p or 6.6% to 174.9p after its unexpected warning, with rival supermarkets hit by the prospect of a price war. Sainsbury slipped 4.2p to 231.6p, Morrisons was down 8.2p at 176.7p and Ocado lost 15.9p to 334.8p.
Banks came under pressure on worries about the effect of another eurozone crisis on their balance sheets, with Barclays down 8.65p to 238.5p and Lloyds Banking Group 1.87p lower at 78.54p.
With the recent plunge in oil and base metal prices, commodity companies continued to come under pressure, with BHP Billiton down 23.5p at 1413.5p.
Afren fell 2.45p to 38.82p while Enquest ended down 1.74p at 40.95p.
But with investors seeking havens, gold moved higher and pushed Randgold Resources 149p higher to £43.35 and Fresnillo up 17.5p to 733p.
Security group G4S added 5.8p to 279.8p after Credit Suisse moved from neutral to outperform, but Shire slid 239p to £43.35 as Bank of America Merrill Lynch cut from buy to neutral.
Coca-Cola HBC, the bottling business, dropped 74p to £13.29 on concerns about its operations in Greece and Russia.
Lower down the market, cloud computer company Iomart - where Cinven made and then withdrew a 300p a share takeover bid earlier in the year - slumped 49p to 178.5p despite reporting 27% growth in full year profits to £8m. Analysts at N+1 Singer said:
Following on from the takeover bid not materialising, we believe these results are not as strong as one would have hoped to recover more of the lost ground, price-wise. The industry is fast evolving which presents some risks to the business so it is highly encouraging to see the changes it is making to address the shifting dynamics. We do think private equity interest in this space will remain high given Iomart remains a highly profitable and cash generative business.
guardian.co.uk © Guardian News and Media Limited 2010