London closes deep in red as global markets plummet

The FTSE 100 Index slumped 2.5 per cent as a 'toxic cocktail' of

European debt fears and military tensions in Korea hammered world markets.

London's Footsie dived below 5000 and fell 150 points at one stage before closing down 128.93 points at 4940.68.

The Dow Jones Industrial Average on Wall Street was also nearly 2 per cent down, with similar heavy falls across Europe.

News at the weekend of a Spanish bank bail-out compounded worries over the European debt crisis, while in Asia there were fears about the threats of military action in Korea and the impact on exporters of the weak euro.

Richard Hunter, head of equities at Hargreaves Lansdown, said: "The toxic cocktail worsens. Continuing fears over the European debt situation stalling the global economic recovery has been exacerbated by the potential of military tensions in Korea."

Europe's embattled single currency was down against the dollar and pound again yesterday, with sterling up 0.7 per cent to 1.17 euros amid the eurozone concerns. The euro fell by around 1 per cent to 1.22 dollars.

In the US, consumer confidence rose in May to its highest since March 2008, as an improving jobs outlook defied the growing fears about European debt market turmoil and threats to global growth.

While sentiment about the labour market improved, the US housing market is looking vulnerable after the expiration in April of a homebuyer's tax credit.

An improving attitude about employment was key to consumers recovering their nerve, as a Conference Board report yesterday said fewer of those surveyed found jobs "hard to get".

Among stocks, miners and financials were suffering the most in the day's sell-off, with part-nationalised Lloyds Banking Group down 9 per cent, or 5p to stand at 501/2p.

Fellow taxpayer-backed player Royal Bank of Scotland dropped 25/8p to 423/4p. Retail chain Marks & Spencer was caught in the wider declines, with shares down 71/8p to 3263/8p despite a 4.6 per cent rise in annual profits to 632.5m coming in at the top end of analyst expectations.

Insurance giant Prudential fell 4 per cent as it came under more pressure ahead of its 24.6bn AIA deal.

The group's shares made a debut in Hong Kong and Singapore markets for the first time in a bid to attract new investors for a mammoth share issue, but both listings were down in a tough session for equities.

In London, Pru shares fell 19p to 511p.

Water firm Severn Trent flirted with positive territory as the sector bucked the wider falls thanks to better-than-expected results from South West Water group Pennon. The stock later shed 4p to 1133p.

However, FTSE 250 firm Pennon surged 10p to 4991/2p after its figures, which revealed a strong performance from waste disposal business Viridor, while a positive broker note on the sector also supported

gains.

Elsewhere, chocolate retailer Thorntons took a tumble, down 12 per cent after it warned over profits for the second time this year and

announced chief executive Mike Davies had decided to retire.

Its shares dropped 12p to 88p.

Fellow small cap stock Homeserve – a provider of home emergency insurance policies, repair services and warranty services – failed to hold on to early gains, losing a 38p rise to close down 1p at 1909p in spite of a 13 per cent increase in annual profits to 100.6m.

There were no Footsie risers at the close of play yesterday.