World stock market sell-off drags London into the red

The release of key US jobs figures showing a surprise fall in the rate of unemployment to 9.7 per cent in December did little to ease the sell-off.

London's FTSE 100 Index closed down another 1.5 per cent, off 78.39 points at 5060.92, following a 2 per cent plunge on Thursday.

There was little respite for US stocks either, as the Dow Jones Industrial Average dropped nearly 1 per cent within the first few hours, trading below 10,000.

The US unemployment rate surprisingly fell to a five-month low and factory payrolls grew for the first time since 2007, hinting at a labour market recovery even though the economy lost 20,000 jobs.

The White House cautiously welcomed the figures but said more needed to be done to put people to work.

Democrats fear voters could punish them in November congressional elections if more headway is not made tackling unemployment.

Across Europe, the Dax in Germany declined nearly 2 per cent and France's Cac 40 closed more than 3 per cent lower.

The FTSE 100 had at one stage pared losses after the release of the US jobs data, but soon fell back yet closer to the key 5000 mark amid concerns that debt-laden countries such as Greece and Portugal would struggle to fund their national deficits.

The dollar gained ground to 1.56 against the pound, while sterling was steady at 1.14 against the euro. In London, banks were among those hit hardest in the sell-off as figures revealed the sector has a near 100bn exposure to the struggling European economies.

Lloyds Banking Group dropped 27/8p to 483/8p, while fund management group Schroders fell 42p to 1123p.

Inter-broker dealer Icap was London's biggest top flight faller after its guidance for full-year profits disappointed investors and it said the rebound in activity at the start of 2010 had been weaker than last year. Shares slumped more than 19 per cent, or 711/8p to 294p.

Miners were under pressure as fears over economic prospects left

Xstrata 52p lower at 950p.

The market's difficulties also meant British Airways failed to benefit from a better-than-expected third quarter update.

It posted its first operating profit for more than a year and said there were signs that cost-saving measures were paying off. Shares, which have been on an upward path in recent weeks, fell 51/4p to 206p.

A rare bright spot in the session came from catering group Compass after it said its new financial year had started well with strong levels of new business and a reduction in the decline in revenues to 1.7 per cent.

Despite the weak stock market, Compass shares rose by more than 5 per cent, or 221/4p to 450p.

It was followed by BAE Systems – up 2 per cent, or 53/8p to 3457/8p – at relief over an agreement on corruption charges, which will see the defence giant pay fines of 286m, but put to bed a lengthy investigation.

Vodafone's well-received trading statement on Thursday continued to help the group, shielding it from the wider losses, with shares dipping 1/8p to 1391/4p.

In the FTSE 250 Index, housebuilders suffered after Bellway added to the weak market sentiment by warning that the property market is likely to be subdued this spring.

Bellway slipped 271/2p to 733p.

The biggest Footsie risers were Compass Group, BAE Systems, Liberty International ahead 43/8p to 4563/4p and Johnson Matthey up 10p to 1498p.