Mkarets: FTSE pares back its early heavy losses

Persistent anxiety on Europe's debt crisis yesterday dented banks and commodity stocks, although gains from defensive pharmaceuticals and tobacco stocks helped the Footsie to limit its losses.

The FTSE 100 Index tumbled more than 1.7 per cent at one stage but later pulled back from its heavy losses to close down just 30.23 points at 5,668.7, a fall of about 0.5 per cent.

Stock markets worldwide slumped into the red as investor focus moved to Portugal, with reports suggesting its partners in the European Union are urging the country to seek a bail-out.

Germany's Dax was down 0.4 per cent and the Cac-40 in France 0.8 per cent lower.

David Jones, chief market strategist at IG Index, said: "Once again concerns about just how far the European debt crisis is going to spread this time around are making for cautious trade."

US stocks followed the decline as Wall Street's Dow Jones Industrial Average fell 0.8 per cent by the time London closed, despite signs of good sales on Black Friday - the beginning of the US Christmas shopping season.

The anxiety has also sent government bond yields - an important indicator of confidence - for Spain and Ireland spiking as investors rushed to sell them. A weakened euro dragged the pound down with it, with sterling hitting a two-month low against the dollar at $1.56.

The pressure on shares was compounded by worries surrounding heightened tensions in Korea, with North Korea warning that US-South Korea plans for military action put it on the brink of war.

Financial stocks and miners were among the worst hit. Part-nationalised Lloyds Banking Group and Royal Bank of Scotland fell 2.9p to 61.9p and 2.2p to 38.7p respectively as fears resurfaced over their exposure to European sovereign debt.

Among miners, Antofagasta was the biggest faller, down 52p to 1,325p.

Energy companies were also under pressure after industry watchdog Ofgem announced an investigation following recent bill hikes.

Scottish Gas parent Centrica dropped 3 per cent or 8.3p to 316p as Ofgem said it would probe supplier accounts after discovering their profit margins had soared by about 38 per cent since September. Perth-based Scottish & Southern Energy also fell, down 8p to 1,148p.

Both firms have revealed price rises in recent weeks and Ofgem said it wanted to check the "facts behind the numbers" after the latest round of bill increases.

Telecoms firm BT was one of the session's risers after the group said Mumbai-based manufacturing conglomerate Mahindra & Mahindra had agreed to buy a further 5.5 per cent stake in their outsourcing joint-venture Tech Mahindra from BT. BT's shares rose 7.3p to 174.2p.

Braehead owner Capital Shopping Centres also saw gains as broker Panmure Gordon upped its rating on the group following its deal to buy Manchester's Trafford Centre and news of bid interest in Capital itself.

Capital shares rose 20p to 401p.

In the FTSE 250, building and infrastructure group Balfour Beatty rose 6.4p to 279.4p thanks to news of a funding deal to plug a 375 million hole in its pension scheme.