Footsie falls as fears cross Atlantic

MARKETS in the UK tumbled to their lowest level in a month yesterday after poor employment and manufacturing reports in the US, combined with oil stocks falling on lower crude prices, renewed investors' concerns about the pace of global recovery.

The FTSE 100 index slumped 91.6 points to 5,211.3, while Wall Street's Dow Jones Industrial Average was more than 1 per cent lower by London's close.

Officials across the Atlantic said claims for unemployment benefits rose unexpectedly last week, while the Federal Reserve of Philadelphia added that manufacturing activity in the country's mid-Atlantic region had dropped.

The latest data will fuel fears that the pace of recovery in the US economy is starting to slow, a sentiment shared by the US Federal Reserve last week.

"There is a fear of a double-dip recession in the United States," said Bob Parker, vice-chairman of asset management at Credit Suisse, warning that the FTSE could fall as low as 4,800 by the end of September.

The FTSE had earlier been in positive territory after the Office for National Statistics reported a stronger-than-expected July for UK high street retailers and signs of an improved trend for the public finances. Upbeat sentiment was further fuelled by the CBI's snapshot of the UK manufacturing sector for the past month - with order books at their best level for two years.

The contrasting economic pictures for the UK and US were reflected in the currency markets, with the pound up against the dollar at $1.56 and also healthier against the euro.

Retail figures issued by the Office for National Statistics, which showed sales volumes up by 1.1 per cent in July, offered a short-lived boost to a number of stocks before the US setback.

However, Morrisons clung to positive territory with a rise of 5.4p to 287p while Sainsbury's shares gained 1.7p to 356.9p after industry figures earlier this week suggested the pair had improved their market share.

The fallers' board saw United Utilities drop 3 per cent or 17p to 572.5p after JP Morgan downgraded the stock and said earnings forecasts were at risk because of factors such as higher property rates.

Severn Trent was also affected by the downgrade as it fell 22p to 1,300p, while in the FTSE 250 index South West Water owner Pennon dropped 20.50p to 566p and Northumbrian Water eased 6.4p to 313.5p.

Insurers were lower after a week of speculation about potential consolidation in the sector generated buying interest. Prudential eased 17.5p to 570p and Standard Life dropped 3.4p to 205p.

On the results front, shares in Cineworld slipped despite the cinema operator reporting a 5 per cent rise in half-year earnings to 24.4 million. It also forecast a boost from a decent schedule of film releases in the second half, but the shares drifted 10.3p to 199p in the wake of the results.John Menzies, the aviation services and newspaper distribution firm, said it expected full-year figures to exceed current market expectations. The shares were 6.5 per cent or 27p higher at 441p.

Scottish oil and gas explorer Cairn Energy was among the biggest fallers in the FTSE 100, dropping 20.4p to 459.3p.