FTSE slides on Chinese inflation fears

Fears over plans to curb inflation in China hit the FTSE 100 Index hard yesterday as it slumped nearly 2 per cent.

The Footsie closed 108.79 points lower at 5,867.91 - a drop of 1.8 per cent - as speculation mounted over the likelihood of a Chinese interest rate hike.

China's economy expanded 9.8 per cent in the fourth quarter, while inflation in December moderated to 4.6 per cent from November's 28-month high but analysts said it was still more than expected.

This led to fears China will have to slow its economic growth, which could dent the country's appetite for crude oil and other commodities.

Mining stocks suffered with silver miner Fresnillo dropping 84p to 1,346p, copper firm Kazakhmys off 84p at 1,538p and coal, copper and nickel giant Xstrata losing 74p at 1,388.5p.

Will Hedden, sales trader at IG Index, said: "The increasing worries over China having to reign in its growth have kept heavyweight resource stocks down all day, with only a handful of companies escaping the crashing waves of the 'red sea'.

"Falling through the 5,900 level for the first time since before Christmas, we have seen the market ruthlessly fall out of its recent range without stopping to pass go."

A positive report from the National Association of Realtors in the US, which showed home sales increasing more than expected last month, failed to offer further cheer but did see the dollar rise against the pound at $1.58. Sterling was also down against the euro at €1.18.

Energy stocks were also weak, as the price of crude oil fell, with BP down more than 2 per cent or 11.95p at 494.1p and Tullow Oil off 53p at 1,307p and Edinburgh-based Cairn Energy down 9.6p at 437p.

British Airways closed nearly 2 per cent down on its last day of trading before its merger with Spanish carrier Iberia. Shares in the new holding company, International Consolidated Airlines Group (IAG), will be listed on the stock markets in London and Madrid on Monday.

Shares shed 5p to 282.5p as investors also reacted to a warning from EasyJet that its half-year losses could double due to the impact of weather disruption and the rising cost of fuel.

The stock fell 16 per cent or 73.8p to 382p after the budget carrier revealed the snow chaos cost it 18 million.

In other corporate news, RSA Insurance - which owns the More Than brand - was another casualty of the recent snow after it revealed its bill for UK weather-related claims was expected to be 110 million more than normal after the coldest December for 100 years.

RSA said full-year profits would be lower than market forecasts - at around 600m to 630m against predictions for at least 700m. Shares fell 1.6p to 133.2p.

Primark owner Associated British Foods saw shares drop 36p to 1,079p after it warned the retailer's profits will be squeezed by the rise in cotton prices.Life sciences outfit ReNeuron fell 0.04p to 6.75p despite a positive broker note from Matrix, which praised the research staff at Glasgow's southern general hospital, where the firm recently carried out the world's first clinical trial of a stem cell treatment for stroke patients.