Britain's top share index fell sharply on Friday as few stocks survived a broad-based sell-off after data showed US jobs growth ground to a halt in August, heightening concerns the economy could fall into recession. Non-farm payrolls were unchanged, the US Labour Department said on Friday.
While private payrolls data also disappointed, with just 17,000 jobs created, when a figure closer to 100,000 was expected, as sagging consumer confidence discouraged already skittish US businesses from hiring. "We will need to see more evidence of a stagnation and potential contraction in the US jobs market for the case for a 'double dip recession' to strengthen over what is currently viewed as medium term anaemic growth," a London-based trader said.
But the data piled more pressure on the Federal Reserve to provide more monetary stimulus to boost growth in the World's biggest economy at its September FOMC monetary policy meeting, which has been extended to two days instead of one to discuss the current slowdown.
"The figures will heighten political tensions and reinforce the view of markets that lack of growth is the problem. Markets and voters will expect support from the government and the Fed," David Miller, Partner at Cheviot Asset Management, which 3.5 billion pounds of assets under management. With corporate earnings at risk from the slowdown in global growth, the UK's benchmark index fell 126.62 points, or 2.3 percent to 5,292.03.
Shares in riskier sectors such as banks and commodities fell furthest as investors reverted to risk-off mode following three straight days of gains. Conversely bonds, gold and the Swiss franc rallied as investors fled to so-called safe-haven investments.
Volumes were thin too with the FTSE trading just 86 percent of its 90-day average, a sign investors were unwilling to be exposed to such volatile markets. Traders said with US equity markets closed on Monday for the Labour day holiday investors were likely to have closed out positions ahead of the long weekend. Integrated oils and miners fell in tandem with oil and base metals as concerns over future demand hit sentiment.
Investors in energy stocks had the added concern that a storm brewing offshore in the Gulf of Mexico could disrupt the operations of major oil and gas producers. Elsewhere UK food retailers were weaker. Wm Morrison shed 1.4 percent ahead of a trading update due out on Thursday, as Citigroup downgraded its rating to "hold" from "buy" as part of a review in which it recommends avoiding the sector. "The cosy, consolidated UK food retail market is destined to turn ugly if the economy shuffles sideways Japan-style and capacity growth plans roll on as planned," the broker said in a note.
Firms under threat from demotion to the FTSE 250 when the quarterly review takes place next week, endured a mixed session with 3I Group down 3.8 percent, while Inmarsat was one of the few risers, up 0.1 percent. Randgold Resources rallied 4.3 percent after recent falls on the back of a poor production update and as investors bought the gold miner as a proxy for the precious metal.