City follows world markets as Greece fears continue

In a return to the volatility seen at the time of the banking crisis, London's blue-chip index slumped to within 45 points of the 5000 barrier before closing 137.97 points lower at 5123.02.

It was also the top flight's worst week since March 2009 after losing 110bn or 7.75 per cent since Monday.

The indecisive general election result – with Conservatives falling short of the winning line – added to fears over debt contagion in Europe.

The dramatic session for London investors began with a 100-point fall before the Footsie recovered its poise to stand in line with its opening mark.

However, markets worldwide then went into freefall, as the Dow Jones Industrial Average added to Thursday's dramatic 3.2 per cent fall.

This was despite a report showing employers added 290,000 jobs – the most added in one month in four years – as traders were still spooked by Thursday's plummet, which at one stage saw the Dow lose 1,000 points.

The US jobs total was far more than analysts had expected.

The department also revised figures for February and March to show 121,000 more jobs were added than previously estimated.

"I think we are moving into this very reassuring range of strong employment growth. It is consistent with the way the economy is going," said Kurt Karl, chief US economist at Swiss Re in New York.

The unemployment rate, however, rose to 9.9 per cent as discouraged workers started to look for work again.

Greece still played on investor's minds amid moves by European leaders to convince fearful markets that the Greek debt crisis won't spread to other countries and derail the continent's currency and economic recovery.

Political uncertainty saw the pound fall against the euro and to a year-low below 1.45 at one stage against the dollar.

But worries that political deadlock would lead to delays in tackling the UK's yawning deficit were allayed somewhat after Liberal Democrat leader Nick Clegg said the party with the most votes and seats – the Conservatives – should have the first stab at trying to form a Government.

Meanwhile, Conservative leader David Cameron signalled a potential deal, promising to work for a "strong, stable government".

Sterling was later at 1.47 against the greenback and 1.15 against the euro.

Financial stocks were hit heavily for a second successive session as part-nationalised Royal Bank of Scotland fell 23/4p to 451/2p, or 6 per cent, even though it narrowed losses to 248m for the first three months of 2010 and said turnaround plans remain "on track".

Lloyds slipped 31/8p to 531/2p but HSBC fared better – adding 11/4p to 6295/8p after first quarter profits "comfortably ahead" of last year and an improving position on bad debts.

Support services group Capita was among the biggest Footsie casualties, down 46p to 7701/2p after a downgrade from brokers at Shore Capital.

British Airways was another heavy faller after the airline's cabin crew overwhelmingly rejected an offer aimed at ending their long-running dispute. Shares dipped 123/8p to 1921/4p.

Rival easyJet dropped 131/4p to 4293/4p in the FTSE 250 after it said it had suffered 750,000 cancellations as a result of the Icelandic volcanic ash cloud.

Elsewhere in the second tier, broadcaster ITV dropped 51/4p, or more than 8 per cent, to end the session at 553/4p.