Recession fears put the brakes on the FTSE 100 Index’s two-day rally today.
London’s blue-chip stocks made strong gains on Monday and Tuesday as optimism over banking rescues carried the market forward.
But shares fell more than 5% as fears over global growth mounted and traders used the recent surge to take their money out of volatile stock markets.
Wall Street’s Dow Jones Industrial Average was also down almost 3% today as gloomy US retail data fuelled economic concerns.
US stocks were unnerved after retail sales plunged by a sharper-than-expected 1.2% in September, adding to concerns over fragile consumer confidence.
Despite the billions in aid to prop up a fragile banking sector, US investment bank JP Morgan’s third-quarter profits also tumbled 84% to $527m after more credit crunch losses.
The downbeat economic sentiment was not helped after UK unemployment jumped at its fastest rate in 17 years during the three months to August.
Some economists predicted UK unemployment could hit three million by the end of 2010 as the economy plunges – worse than the recession of the 1990s.
Mining firms dominated the Footsie fallers board on demand concerns, although the price of safe havens such as gold rose.
Meanwhile crude oil for November delivery fell to a 13-month low below 75 dollars a barrel in New York amid fears of falling demand a slowdown. In London, Brent crude hit a low of 71.06.
The price falls sent shares in heavyweight oil giants BP and Royal Dutch Shell down 5%.
Banks were among the few gainers after reports the Treasury was under pressure to rework its £37 billion bail-out to allow some dividends for investors.
Lloyds TSB gained 6%, while Royal Bank of Scotland – raising £20bn from the Government – added 1%.