Britain's top shares suffered their biggest fall for over six weeks on Thursday as investors were rattled by concern that rising interest rates and high oil prices could combine to choke off economic revival.
Banks, telecoms and mining stocks were all under pressure, and British Airways shed four percent as news of a 16 percent rise in its April traffic failed to dispel worries of stiffening industry competition and the impact of higher fuel costs.
The FTSE-100 share index closed down 53.3 points, or 1.2 percent, at 4,516.2, after extending morning losses to as low as 4,511.7 after a sharp early fall on Wall Street. It was the FTSE's biggest fall since March 22 and wiped out most of its gains in the last two days.
Midday news that UK interest rates had been raised by a quarter point had been widely expected, but dealers said the Bank of England also signalled it could act again soon as retail spending and house prices remain robust.
Ongoing violence in Iraq and crude oil prices hitting a 13-year-high also created headwinds for equities.
"There are quite a few negatives out there. Iraq is still a big concern, and an oil price staying near $36 would be a big drag on global growth," said Hilary Cook, director of investment strategy at Barclays Private Clients. "The market still feels a bit nervy."
The threat that rate rises could slow economic growth and lingering worries that Chinese demand will fade weighed on mining stocks such as Anglo American, down three percent, and steel maker Corus, down 5.3 percent.
Banks and insurance stocks were also generally lower, with Royal & Sun Alliance reversing four percent and Barclays down 1.8 percent.
But Royal Bank of Scotland bounced one percent, recovering after a fall on Wednesday when it raised 2.5 billion pounds in London's second-biggest accelerated book-build ever to help fund its acquisition of Charter One Financial.
The major oil stocks also lent support on the back of strong crude prices. Shares in BP and Shell, which are also continuing to buy back their own stock, added 0.4 percent and 0.6 percent, respectively.
Bookmaker William Hill was also among only 10 blue chips to rise, adding 1.4 percent on optimism it will win approval for share buybacks later this month, dealers said.
Food retailer Sainsbury fell 1.9 percent after analysts at J.P. Morgan said they expected the company to warn on profits later this month as it faces stiff competition from rivals. But Sainsbury said trading in the first five weeks of 2004/05 had been in line with expectations.
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