Britain's benchmark share index lost more than 1 percent on Tuesday, as worries about the US subprime mortgage market dragged on banks, but renewed merger and acquisition talk lent some support. Banking stocks led the FTSE 100's decline, with Barclays losing 3 percent, HBOS down 2.2 percent and Northern Rock dropping 2.6 percent as concerns about a suffering US subprime mortgage market spread to Europe.
Across the Atlantic, data showing that retail sales unexpectedly declined last month aggravated economic concerns. The FTSE 100 ended 72.1 points, or 1.16 percent lower, at 6,161.2, amid a pan-European sell-off as investors remained cautious after a recent slide in world stock markets stoked a climate of global economic concern.
"All the evidence suggests that this is nothing more than a normal, healthy correction in the continuing bull market," said Jim Wood-Smith, head of research at Williams de Broe. "However, there is a huge caveat to this ... which is that everybody is saying it's a healthy correction," he added, expressing concern that the market may be too quick to dismiss the possibility of a greater equity slide ahead.
Leading the downside, brewing giant SABMiller shed 4.4 percent after Dutch brewer Heineken's termination of its South African subsidiary's licence to manufacture and distribute Amstel Lager. M&A activity abounded, with the world's largest confectionery group Cadbury Schweppes topping the FTSE 100 leaderboard. It was up 10.5 percent after saying activist investor Nelson Peltz had built up a 3 percent stake, sparking talk he wanted to split the company to unlock value.
M&A speculation also spurred Alliance Boots, which rose 2.1 percent after The Times reported that Stefano Pessina, deputy chairman of the drugs wholesaler and retailer, and private equity firm Kohlberg Kravis Roberts are considering whether to raise their joint bid.
The Alliance Boots board has rejected their 10 billion pound take-over approach. Among midcaps, music and books retailer HMV Group plunged 15.9 percent after it issued a profit warning and disappointed some analysts with a turnaround plan aimed at tackling competition from supermarkets and Internet retailers.
Shares in Wolseley, the world's largest distributor of plumbing and heating products, lost 3.9 percent as investors cited worries over the US housing market. Commodities also weighed, with US crude oil trading under $60 a barrel on expectations that Opec will keep output steady at its Thursday meeting. BP lost 0.9 percent and rival Royal Dutch Shell dropped 0.8 percent. Chilean copper miner Antofagasta fell 1.2 percent after it posted an 86 percent rise in annual profit but said recent market volatility was likely to continue.