Renewed concerns about the eurozone debt crisis triggered a steep sell-off of Britain's top shares on Monday, led by commodity stocks, with some analysts and investors seeing little on the horizon to tempt investors back into the market. The FTSE 100 index ended at its lowest closing level since March 23, off 112.60 points, or 1.9 percent, at 5,835.89.
Fears of further sovereign debt crises were heightened after ratings agency Fitch downgraded Greece's debt by three notches on Friday to 'B+', and rival Standard & Poor's cut its outlook for Italy to "negative" from "stable" the following day. Doubts about austerity measures in Spain added to the worries after the country's ruling Socialist party was defeated in regional elections.
"It's becoming less about Greece now and more about the contagion effect," Michael Hewson, market analyst at CMC Markets, said. "There's also the fact that you've got these differences of opinion between ECB policymakers and European policymakers with respect to debt restructuring. The fact that it's being openly discussed obviously brings into doubt the solvency of the ECB because they are a big holder of Greek bonds."
Miners were out of favour as copper prices fell, dented by the worries over eurozone debt and weaker demand from top consumer China. Anglo American was the worst off, down 4.1 percent, while Antofagasta shed 3.9 percent after China's imports of refined copper declined more than 48 percent year-on-year in April. Integrated oil company stocks and banks also exerted heavy downward pressure on the blue chip index, as investors rotated out of assets perceived as risky.
The FTSE 100 volatility index, a barometer of investor anxiety, hit a two-month peak on Monday, up nearly 16 percent. The higher the index, the lower investors' appetite for risky assets such as stocks. "I think there could be continued selling pressure as technically the FTSE and other European markets are starting to break down from their uptrends," said Lex van Dam, hedge fund manager at Hampstead Capital, which has $500 million of assets under management.
"To see the markets down another 5 percent from here over the coming weeks would not surprise me." Travel stocks fell as a volcanic ash cloud from Iceland threatened to cause disruption to flights, with British Airways owner International Airlines Group (IAG) off 5.1 percent, and tour operator TUI Travel 3.2 percent weaker. IAG shares were also undermined by a negative read-across from Ryanair, which blamed high fuel costs and a lack of growth in capacity on flat earnings. Its shares fell 5.3 percent.
Elsewhere, British Land slipped 2.8 percent as both Panmure Gordon and Peel Hunt downgraded their ratings for the blue chip real estate group following its full-year results. Next was one of only two gainers on the FTSE 100 on Monday, up 1 percent, recovering from declines made in the previous session, with traders citing optimism ahead of peer Marks & Spencer's full-year results on Tuesday. M&S slipped 0.5 percent, outperforming the broader market. Capita, was the other bright spot on the blue chip index, up 1.6 percent, as traders pointed to results from fellow outsourcer Mitie. Its shares rose 5 percent.
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