Share Index Suffers £35bn Slump

London Share Index Suffers £35bn Slump On Back Of US Debt Deal

PRESS ASSOCIATION -- Nearly £35 billion has been wiped off London's blue-chip share index after fresh eurozone and US debt fears sparked a bloodbath on world markets.

London's FTSE 100 Index slumped 2.3%, or 133.9 points, to 5584.5 - its lowest level since November when markets crashed amid Ireland's £72 billion bail out. It was also the index's biggest daily fall since November.

The latest rout for the world markets saw the Dow Jones Industrial Average decline by 0.8%, leaving it on course to fall for a ninth session in a row. Meanwhile, the CAC 40 index in France and the Dax in Germany also dropped around 2%.

The slump was triggered by renewed fears that America's economy is heading for recession, fuelled by speculation that the world's largest economy will be damaged by recently agreed budget cuts. And new economic figures showed US services sector activity was lower than expected in July, while factory also orders fell.

Spanish and Italian government borrowing costs escalated as financial markets fretted that they would struggle to keep up with debt repayments. Weaker Chinese services data also added to worries about the global economic recovery.

Brent crude oil prices dropped 2% to 113 US dollars, while shares in energy and mining companies tanked amid the possibility that demand for raw materials may fall.

Gold - seen as a safe haven investment - hit record highs of 1,674 US dollars an ounce, before settling at around 1,670 US dollars. But the UK and the pound have also emerged as a so-called safe haven - territory normally reserved for the US dollar.

The yield on 10-year gilts, the benchmark UK Government bond, has fallen to a record low while sterling strengthened against the dollar - signalling confidence in the UK's financial position compared with other nations.

David Jones, chief market strategist at IG Index, said: "It is the now familiar double-whammy of sovereign debt and a stumbling recovery that has smashed sentiment once again today.

"Italian and Spanish yields have jumped in recent days, and for too many traders this looks like a replay of last year's Greece and Ireland troubles."

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