London closes deep in red as global markets plummet

Sentiment was knocked on both sides of the Atlantic after Bank of America Merrill Lynch and Citigroup revealed that investment banking revenues dropped in the second quarter.

This sent British blue chips plunging, with the FTSE 100 Index closing down 52.44 points at 5158.85.

America's Dow Jones Industrial Average fell nearly 2 per cent within the first few hours of opening, with investor nerves also frayed after worse-than-expected second quarter earnings growth from Google and poor US consumer confidence data.

US consumer prices fell for a third straight month in June while consumer sentiment tumbled to an 11-month low in July, underscoring the soft nature of the economic recovery.

The Consumer Price Index dipped 0.1 per cent last month after falling 0.2 per cent in May, the Labour Department said yesterday. Analysts had expected consumer prices to be flat.

Excluding volatile energy and food prices, the closely watched core measure of consumer inflation rose 0.2 per cent after gaining 0.1 per cent in May.

In currency news, the pound gave back some of the gains made earlier this week against the US dollar.

Sterling sunk 0.8 per cent against the greenback, to 1.53 dollars, while it fell 0.7 per cent to 1.18 euros.

Friday's stock market falls came despite gains for BP after it revealed latest efforts had succeeded in temporarily stopping the flow of oil into the Gulf of Mexico for the first time since the disaster struck in April.

BP had been as much as 8 per cent higher at one stage, while the wider Footsie was also around 50 points higher in early trading.

But investor cheer soon faded as second quarter earnings figures from BoA Merrill Lynch and Citi showed both suffered lower trading revenues. This overshadowed news of overall higher earnings within the two banks as loan losses fell.

JP Morgan Chase reported a similar trend on Thursday, confirming that major banks have been hit by the stock market's plunge this spring.

Banks fell on the FTSE 100 Index as investors also anticipated a disappointing second quarter reporting season from the UK sector.

Barclays fell 5 per cent – down 153/4p to 2845/8p – HSBC dropped 157/8p to 6215/8p and Lloyds Banking Group shed 21/4p to 595/8p.

BP lost much of its earlier gains amid the afternoon sell-off, leaving it 53/8p higher at 4071/8p.

Another big rise in the top flight was achieved by luxury goods group Burberry after it announced plans to buy out its franchisees in mainland China.

It will pay about 70m to take full control of 50 stores in 30 cities, including nine stores in Beijing and four in Shanghai. The move was welcomed by investors as shares jumped 9p to 7991/2p after Burberry said the move should add 20m to operating profits by the 2011/12 financial year.

Elsewhere, babycare retailer Mothercare shed 6p to 524p in the FTSE 250 following news it is in talks to buy a 25 per cent stake in Headline, which operates the Mothercare and Early Learning Centre franchises in Australia and New Zealand.

The move should enable Headline to accelerate growth in the region.

The biggest Footsie risers were Essar Energy up 101/8p to 4581/4p, BP, Invensys up 31/2p to 2651/4p and Burberry.

The biggest Footsie fallers were Barclays, Fresnillo off 41p to 1060p, Lloyds Banking Group, and Royal Bank of Scotland down 11/2p to 433/4p.