Shares battered by double-dip fears
Sellers outnumbered buyers yesterday as fears of the dreaded double-dip recession resurfaced on both sides of the Atlantic.
Dismal housing data from the US rattled investor confidence and fuelled fears the economy there will move into reverse.
Figures released by the National Association of Realtors revealed an unprecedented drop in sales last month of previously occupied homes in the US.
The effect of the uncertain economic outlook rippled across the pond to London, where Bank of England economist Martin Weale warned that Britain faced a "significant" risk of a double-dip setback.
Amid relatively thin summer trade, the benchmark FTSE 100 index ended the session almost 79 points, or 1.5 per cent, weaker at 5,155.95 - its lowest close since 20 July.
As London closed, Wall Street's Dow Jones Industrial Average was down just under 1 per cent, the Nasdaq was off by a similar percentage and the Standard & Poor's 500 Index declined just over 1 per cent.
CMC Markets analyst Michael Hewson said: "If July was a good month for equities it looks like August could well be the opposite as risk aversion continues to dominate sentiment.
"US markets opened lower on the back of the weaker sentiment in Europe and these losses were exacerbated when existing home sales for July fell over twice as much as expected."
Gold rallied by nearly 1 per cent, breaking a two-day losing streak after the negative US data undermined the dollar and whet investor appetite for perceived safe-haven assets.
Fears over a weaker global economy meant resources stocks dominated the blue-chip fallers board, with Vedanta Resources off 8 per cent or 155p to 1,882p and Kazakhmys down 45p at 1,091.4p. There was further weakness for BP, which declined 13p to 377.5p in a fresh slide for the oil major despite the end of the Gulf of Mexico oil spill.
The economic nerves also overshadowed upbeat results from media and advertising giant WPP after it raised its revenues outlook for the full year due to a stronger-than-expected turnaround in North America.
Chief executive Sir Martin Sorrell also said major global economies were likely to avoid a double-dip recession, but this was not enough to lift the downbeat mood of investors as shares fell 26.5p to 644.5p.
Building supplies firm Wolseley, which is heavily exposed to the US economy, also fell 67p to 1,239p on the day that it announced a 43 million deal to sell its Brandon Hire tool business. Analysts expect further disposals after a review by Wolseley put 19 firms on a list of operations to improve or sell.
Housebuilder Persimmon was buoyed by news that it had restored its dividend payments and said it was cautiously optimistic about prospects following higher half-year profits of 39.4m. Shares closed 1.5p firmer at 348.1p.
Borrowings also reduced sharply as the company focused on improved selling prices, rather than chasing higher volumes.
Punch Taverns shares were 7.2p higher at 85.4p after an improved trading performance in the group's managed pubs estate led it to forecast full-year profits marginally ahead of its previous expectations.