City tumbles into the red as eurozone worries heighten

Miners and banks bore the brunt of the sell-off, which left the Footsie 170.88 points lower at 5262.85 and saw investors retreat into safer havens such as gold and the dollar. The euro dropped to its lowest level since October 2008 against the greenback, while the pound also dipped to just above the 1.45 dollar mark.

The latest shares slump, which came at the end of a decent week for the Footsie, followed worries that deep spending cuts aimed at cutting deficits in Spain, Portugal and Greece will dampen growth in the region.

Wall Street followed suit despite an upbeat batch of economic news in the United States, as industrial production saw a stronger-than-expected gain in April and sales by retailers climbed 0.4 per cent, rather than dropping as had been forecast.

The pick-up in US consumer sentiment, coupled with a recovery in the labour market, bodes well for future retail sales, which showed some pockets of weakness in April.

Despite that and a modest fall in the measure that corresponds most closely with the consumer spending component of the government's gross domestic product report, analysts remained upbeat on the outlook for spending.

"The decent gains in payroll employment in recent months have improved the outlook for spending," said Paul Dales, a US economist at Capital Economics in Toronto. The worries over the stability of the eurozone meant investors returned to the traditional safe haven of gold, which pushed to $1,248 an ounce this week and remained within sight of all-time highs in trading yesterday.

Michael Hewson, currencies analyst at CMC Markets, said there was real concern that growth prospects in Europe will "fall into a black hole, as governments across the euro zone slash spending and increase taxes in order to rein back their exploding deficits".

The Footsie fallers' board was dominated by miners as economic growth fears dominated, meaning Xstrata slumped 87p to 10091/2p, off 8 per cent, Rio Tinto dropped 188p to 3210p and Kazakhmys fell 92p to 1236p.

In banking, Barclays was the biggest faller after Credit Suisse highlighted the potential financial impact of regulatory changes due to be imposed on the sector.

The stock's decline of 6 per cent, or 201/8p to 3087/8p, came as the Competition Commission confirmed plans to ban the sale of payment protection insurance alongside mortgages, loans and other credit products. Barclays argued the move would limit consumer options.

Elsewhere in the sector, Royal Bank of Scotland dropped 4 per cent, or 17/8p to 471/4p, and Lloyds Banking Group fell 27/8p to 575/8p.

One of the few bright spots in a dismal session came from building supplies firm Wolseley after it forecast better-than-expected profits, helped by cost-saving measures and a return to like-for-like revenues growth in the UK and Canada. Numis Securities revised its profits estimate from 352m to 406m and raised its recommendation on the stock from sell to hold. Shares defied the weak market sentiment to lift 80p to 1688p.

Outside the top flight, bookmaker Ladbrokes dropped 3/4p to 150p after it reported a 6 per cent revenues slide during the first four months of the year.

Across its chain of UK stores the amounts staked by punters fell 10 per cent, while January's VAT hike also squeezed net revenues from its gaming machines. William Hill was another faller, off 55/8p to 191p.

The only Footsie riser was Wolseley.