Fears of a return to political turmoil in the eurozone put a sharp end to London’s new year rally and plunged world markets into the red.
London’s FTSE 100 Index closed down 100.4 points at 6246.8 - the biggest points fall in a day since July last year - amid signs Silvio Berlusconi’s right wing coalition could be a contender in the Italian elections.
A boost in the polls for Mr Berlusconi increases the risks of political deadlock and came at the same time as calls for Spain’s prime minister Mariano Rajoy to quit following claims of corruption prompted investors to lock-in profits following the London market’s best January run since 1989.
The Dow Jones Industrial Average followed European stocks lower after worse than expected US factory order data reversed Friday’s big push, which left the index within striking distance of 2007 highs.
The pound was up against the euro at 1.16 as the political uncertainty sent Italian and Spanish bond yields to their highest levels in four weeks. It was also up against the US dollar at 1.57.
The biggest FTSE 100 risers were Randgold Resources up 190p to 6275p, Shire ahead 18p to 2153p, Burberry Group 10p higher at 1397p and Rolls-Royce up 1.5p to 972.5p.
The biggest FTSE 100 fallers were Aviva down 16.2p to 351.9p, CRH off 59p to 1310p, Johnson Matthey 83p lower at 2243p and Kazakhmys down 26.5p to 727.5p.