Britain's leading share index shed 1.2 percent on Monday, as miners and banks tumbled on investors' fears that an intensifying credit crisis would unleash more losses at banks and threaten world growth. The FTSE 100 ended down 70.8 points at 5,629.1, its lowest close since the end of January, as shares slid across Europe and on Wall Street.
The UK benchmark index has fallen nearly 13 percent so far this year as fears of an increasingly likely US recession have rattled investors globally. US stocks dropped as traders cited talk that a Wall Street firm faced liquidity concerns, dragging down financial stocks and adding to anxiety about the credit crisis and recession fears.
"Given the continuing tough conditions in the credit markets, I don't think anybody can say we're out of the woods," said Jeremy Batstone-Carr, head of private client research at Charles Stanley. "We're still in the eye of the storm ... Sentiment remains very fragile," he added.
Miners were the worst hit, knocking about 38 points off the index, on concerns of slowing global demand and worries that recent merger and acquisition activity may come to nothing, traders said.
All stocks in the sector ended in the red, with Antofagasta losing 7.4 percent, while Rio Tinto and Vedanta Resources both dropped 6 percent. But oil major BP rose 1 percent and Royal Dutch Shell added 0.5 percent, benefiting as the oil price hit a record high above $107 a barrel as investors bought oil as a hedge against a depressed dollar and inflation.
Overnight, Japan's Nikkei average lost 2 percent on Monday to hit a two-and-a-half-year closing low. HSBC advanced 1.5 percent after reports the global banking group would try to raise its stake in China's Bank of Communications (BoCom) beyond 20 percent.
But a BoCom official, speaking on condition of anonymity, termed as misleading a Bloomberg report that BoCom and HSBC were seeking a waiver from Chinese rules that cap foreign ownership of domestic banks at just under 20 percent. HSBC declined to comment.All other FTSE 100 banks fell, apart from Alliance & Leicester, which edged higher.
Standard Chartered dropped more than 2 percent after the Middle East Economic Digest magazine said the Asia-focused bank was considering buying RBS's 40 percent stake in Saudi Hollandi Bank in a bid to secure a presence in the world's largest oil exporter.
Friends Provident advanced 0.8 percent after the Sunday Express said private equity group JC Flowers was gearing up to launch a 3.5 billion pound ($7 billion) offer for the life insurer.
Both JC Flowers and Friends Provident declined to comment. A source familiar with the situation said JC Flowers remained interested in the British insurer but a bid was not imminent.
Housebuilders suffered as Bovis Homes plunged 12.4 percent after it said 2008 volume would be sharply lower if current weak market conditions continued. Taylor Wimpey lost 6.5 percent, Persimmon dropped 4.3 percent and Barratt Developments lost 4 percent. Compass Group shed 4.6 percent after Goldman Sachs downgraded the world's biggest caterer to "sell" from "neutral".