London: Britain’s top shares fell sharply early on Wednesday, as a move by Germany to limit short-selling dented already fragile risk appetite, sending commodity stocks and banks into retreat.
By 0803 GMT the FTSE 100 was 101.87 points or 1.9% lower at 5,255.36 after it ended 0.9% higher on Tuesday.
The euro and Asian stocks fell sharply, as did industrial metals, on worries the German ban on naked short-selling of some securities, and stronger financial regulation in the United States, would derail the global economic recovery.
Miners fell in tandem with metals. Rio Tinto, Xstrata, Lonmin, Anglo American, Kazakhmys and BHP Billiton fell 4.0 to 6.0%.
The ban on naked short sales of euro-denominated government bonds, credit default swaps based on those bonds, and shares in Germany’s 10 leading financial institutions was announced after European markets closed on Tuesday.
“Investors are worried about what it says about regulation in the euro zone and markets generally going forwards,” said Giles Watts, head of equities at City Index. “It adds to uncertainty and the nervous feel of the market.”
US stocks were also hit. Several Republicans will vote with Democrats in Washington to wrap up debate on the sweeping reform of financial regulations and move toward final passage, Senate Majority leader Harry Reid said.
Energy stocks were a significant drag on the index, pressured as crude fell below $69 per barrel.
BG Group, Royal Dutch Shell, Tullow Oil, Cairn Energy BG Group and Royal Dutch Shell fell 1.7-2.6%.
Banks, sensitive to changes in risk appetite were also lower. Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group fell 1.0-3.5%.
British credit information firm Experian outperformed the wider UK market, falling 1.2% after topping forecasts with a 6% rise in full-year operating profit, upping dividends and a introducing a $300 million share buyback programme.
Home Retail, which lost its dividend attraction on Wednesday, dropped 6.9% also weighed by UBS which downgraded its rating and cut its forecasts on the owner of Argos and Homebase, citing potential threats to earnings and the spectre of M&A waning.
Defensive stocks such as pharmaceuticals were not immune to the sell-off, with not a single stock in positive territory.
AstraZeneca, GlaxoSmithKline and Shire fell 0.5 to 1.3%.
With no major domestic data due for release on Wednesday, British investors will watch US inflation data, due for release at 1230 GMT.
As well as Home Retail, Capital Shopping Centres, Carnival, HSBC and Sainsbury went ex-dividend, knocking a total of 5.21 points off the index according to Reuters calculations.