Markets slump close to 5,000

SHARES in London dropped sharply again yesterday on further concerns over European debt and fears over the strength of the economic recovery in the United States.

The benchmark FTSE 100 index closed down 78.39 points or about 1.5 per cent to close at 5,060.92.

This week the index of Britain's 100 leading public companies has fallen 2.5 per cent, its fourth consecutive weekly retreat. Yesterday's slump alone wiped more than 29 billion from the top flight and the index has now shed about 9 per cent since hitting 5,600 in early January.

The release of key US jobs figures showing a surprise fall in the rate of unemployment to 9.7 per cent in December did little to ease the sell-off.

Other European markets were also sharply lower, amid concerns over the health of debt-laden countries such as Greece, Portugal and Spain.

David Jones, chief market strategist at IG Index, said the mood was distinctly negative in the City. "For now, many investors are simply grateful that the FTSE hasn't crashed below that big 5,000 level," he said.

In London, banks were among those hit hardest in the sell-off as figures revealed the sector has a near-100bn exposure to the struggling European economies. Lloyds Banking Group dropped 6 per cent, or 2.94p to 48.32p, while fund management group Schroders fell 34.5p to 929.5p.

Inter-broker dealer Icap was London's biggest top-flight faller after warning that 2009 profits would miss expectations and that 2010 had not started as well as expected.

The company had already been hit by fears over the impact of banking reforms on its trading levels. Shares slumped more than 19 per cent or 71.1p to 294p.

Miners were under pressure as fears over economic prospects left Xstrata, which will deliver results next week, 52p lower at 950p.

BAE Systems, up 5.4p at 345.9p, was among the few risers after announcing a 286 million settlement to end investigations by the US Department of Justice and the UK's Serious Fraud Office.

Catering group Compass was also sharply higher, after it said it had seen a good start to the year, with sales decline slowing. Shares closed up 5.1 per cent at 450p, making it the best performer in the FTSE 100.

British Airways fell, despite better-than-expected third quarter results.

The airline posted its first operating profit for more than a year and said there were signs that cost-saving measures were paying off. However, the shares, which have been on an upward path in recent weeks, slipped 5.3p to 206p.

Oil and gas group BG became the third UK oil major to report disappointing results this week, following profit misses by BP and Royal Dutch Shell. Shares in the company dropped 3.2 per cent to 1,112p.

BP, Shell, Tullow Oil and Cairn Energy were all down yesterday as a stronger dollar dragged crude prices in New York down 3 per cent to $71 a barrel.

Among the mid-caps, Melrose Resources, the Edinburgh-based oil explorer, rose 8.5p or 2.9 per cent to 300p after announcing a significant gas discovery in Egypt and announcing that it had also begun taking seismic tests of a frontier region of the country.

Small cap Havelock Europa fell a penny to a fresh record low of 13.5p as investors fretted about the shop and school refitter's negotiations with its banks. Fife-based Havelock announced its third profit warning in as many months in late January.

On Aim, Goals Soccer Centres dropped to its lowest level since March last year, on fears the snow and ice may have hit profits. Analysts have all trimmed forecasts in recent weeks and Goals dropped 13p or 9 per cent to 132.25p.