Britain's FTSE 100 ended down 0.8 percent after a volatile session on Monday as recession fears bit into bank stocks, but robust gains in defensives offered investors some respite after a morning of hefty market losses. The FTSE 100 closed down 0.8 percent, or 30.77 points, at 3,852.59, its lowest close since April 2003. The index has fallen more than 40 percent year-to-date in wake of a global credit crisis.
A mixed trading session on Wall Street sparked rollercoast pricing in Europe. The FTSE swung between positive and negative territory in late trade, and earlier tumbled as much as 5.6 percent to a day's trough of 3,665.21, its lowest in 5-1/2 years. The index hit a day's high of 3,911.61.
Investors world-wide fled risky equities as fears mounted that a snowballing financial crisis would be followed by global recession. European equities slid after Japan's Nikkei fell 6.4 percent to a 26-year closing low and Hong Kong's Hang Seng tumbled nearly 13 percent. "We're at volatility levels last seen in the 1930s," said Peter Dixon, an economist at Commerzbank. "You've got all the ingredient in place for the most volatile market mix."
At the time of the London market close, the Dow Jones industrial average ticked higher but the S&P 500 and Nasdaq slipped. Wall Street's VIX volatility index - a gauge of investor fear - surged more than 70 percent. Among banks, Standard Chartered skidded more than 10 percent, Royal Bank of Scotland shed about 6 percent and HSBC lost nearly 5 percent.
Also weighing on banks, English and Welsh house prices fell by 7.3 percent in the year to October, with the pace of decline accelerating to take prices back to their lowest since March 2006, property consultancy Hometrack said. "All of our chickens are coming home to roost. We've had banking collapses in the shape of Bear Stears and Lehman, we've had bank bail outs on a massive scale, even policy makers have been calling it the worst crisis in generations," Dixon added.
"All our nightmares have come at once. The recession in the industrialised world is rearing its ugly head and you've got a meltdown in certain emerging markets." On the upside, pharmaceutical shares firmed with AstraZeneca rising 2.9 percent. The group is expected to underline the relatively defensive nature of pharmaceuticals on Thursday with solid figures, after decent numbers from GlaxoSmithKline, Novartis and Roche. Glaxo added 5 percent.
Tobacco stocks also rallied, with British American Tobacco up 7.2 percent and Imperial Tobacco gaining 4.1 percent. Among food retailers, Morrison rose 4.5 percent, Tesco added 4.9 percent and Sainsbury also rose. The Group of Seven rich nations tried to cool a rally in the yen with a warning against volatility as Tokyo scrambled to shield its largest banks from the financial crisis.
UK Prime Minister Gordon Brown has hinted at the possibility that lower inflation thanks to falling oil prices could prompt central banks around the world to make more joint interest rate cuts, the BBC reported. Energy stocks fell as US crude oil ticked lower. BP shed 0.5 percent and Royal Dutch Shell lost 0.8 percent. Miners also weighed on the FTSE, with Xstrata down 8.8 percent, Lonmin off 7.4 percent and Anglo American down more than 3 percent.