Britain's FTSE 100 fell sharply on Tuesday morning, hit by concerns over the instability of the euro zone and the potential for the global economy to fall into recession.
London's blue chip index shed 116.26 points, or 2.3 percent to 4,959.24, by 09:52 SA time, adding to Monday's 1 percent fall and echoing sharp falls on Wall Street and in Asia overnight, which fell to 13-month and 16-month lows respectively.
Goldman Sachs economists lowered their global growth forecasts and now expect growth of 3.5 percent in 2012, compared with 4.2 percent previously. They estimated 0.1 percent euro zone growth in 2012 with a mild recession in the fourth quarter of this year and the first quarter of 2012.
“The downgrade is centred in Europe, where they are concerned that uncertainty surrounding the sovereign situation is tightening credit conditions in the periphery and holding back spending decisions in the core,” Goldman Sachs said.
Banks were again bearing the brunt of the selling as traders feared the ongoing debt crisis in the euro zone could plunge the sector into another credit crisis.
In a meeting in Luxembourg, euro zone finance ministers said they were reviewing the size of the private sector's involvement in a second bailout package for Greece, a move that could hasten the threat of a debt default.
Investors exited positions in London-listed banks heavily exposed to the euro zone and which not protected by a short-selling ban enjoyed by financials in other parts of Europe.
Royal Bank of Scotland was the top faller among the banks on the FTSE 100, down 7.1 percent.
Franco-Belgian financial group Dexia , down 23 percent, said it would to clean up its balance sheet after concerns about its exposure to Greece saw Moody's announced a possible ratings cut on Monday.
GROWTH PAIN REINS
Commodity stocks fell too as concerns over global growth spelt pain for other riskier assets with energy shares retreating along with oil as the outlook for demand grew murkier.
Royal Dutch Shell shed 2.2 percent after it offered to pay for at least two cargoes it is unable to deliver because of a fire at its refinery in Singapore last week, industry sources said on Tuesday.
Miners too were a major weight on the downside as Credit Suisse echoed Morgan Stanley's short-term downbeat sentiment on the sector, by cutting 2012 earnings forecasts for the diversified and base metal miners by up to 30 percent.
Lonmin shed 3.8 percent and Anglo American fell 3.6 percent, as Credit Suisse downgraded their respective ratings to “underperform” and “neutral”.
Elsewhere, Wolseley , the world's biggest building supplies company, dipped 4 percent after saying the weak economy would hit its markets, despite reporting its annual profit rose by over a third.
Man Group slipped 6.5 percent, with traders citing the impact of a fresh broker downgrade from Morgan Stanley in the wake of the hedge fund manager's recent disappointing trading update.
International Airlines Group fell 4 percent on growing fears its transatlantic partner American Airlines was headed for bankruptcy.
There were few stocks on the FTSE risers list. Tesco gained 2 percent after UBS upgraded its rating for the retail group to “buy” from “neutral”, adding the stock to its Key Calls list, ahead of first-half results on Wednesday.
Peer Morrison Supermarket climbed 1.1 percent.
On the domestic economic front, September's Markit/IPS construction PMI report will be released at 0828 GMT, with a reading of 51.5 forecast, down from 52.6 in the previous month. - Reuters