LONDON: London shares dropped on Thursday, hitting session lows after Britain scaled-back job support for workers hit by the resurgent coronavirus pandemic, while AstraZeneca slid as US trials for its Covid-19 vaccine remained on hold.

After two days of gains driven by new restrictions to curb a resurgence in Covid-19 cases being less severe than expected, the blue-chip FTSE 100 index fell 1.3%, while the mid-caps index closed down 1.1%.

British finance minister Rishi Sunak unveiled plans to extend loan repayments for businesses and delay ending a tax cut for the hospitality sector.

But under a new programme to replace the job retention scheme, which ends next month, government support will only be available to workers whose employers keep them on at least a third of their normal hours, Sunak said.

The travel and leisure sector, the worst hit by pandemic-induced restrictions to movement, was down 1.8%. AstraZeneca lost almost 3%. The US Food and Drug Administration is yet to approve the restart of clinical trials of AstraZenaca's potential Covid-19 vaccine in the United States, almost three weeks after it was paused.

Cinema chain Cineworld tumbled 14.8%, recording its biggest single-day fall in over three months, as it swung to a first-half loss and flagged risks to its ability to continue as a "going concern".

Engineering firm Smiths Group slid on reporting a 23% drop in annual profit, while Pets At Home jumped after saying it expects annual earnings to beat market consensus.

While the measures will go some way to cushioning the blow to economic recovery and limiting the long-term hit to unemployment, it won't eliminate the hit entirely, said Ruth Gregory, senior UK economist with Capital Economics, adding this could see GDP stagnate in the last three months of the year.