FTSE down 3% as Dow drops below 10,000

The FTSE 100 was more than 3% lower in mid-afternoon trading as weak US consumer confidence numbers added to fears about the state of the world economy.

The FTSE 100 fell 165 points, or 3.3%, to 4907 - close to day lows.

The main US index was down 2.6% at 9876 after the Conference Board Consumer Confidence Index dropped to 52.9 in June from 62.7 in May - a far greater fall than the retreat to 62 that economists had been forecasting.

Paul Dales, US economist at Capital Economics, said: 'The expectations index dropped from 84.6 to 71.2. The latter is broadly consistent with annual consumption growth of around 1.5%, pointing to a slowdown from the 3.0% rate seen in the first-quarter and the 3.0% rate that looks likely for the second quarter.'

This adds to a flurry of downbeat US economic news over the last month and added to worries earlier in the day after weaker than expected data in Japan and China dragged markets lower.

All eyes are now on Friday's non-farm payrolls data - after disappointing numbers last month.

In Europe, France's CAC 40 was down 4.04% and Germany's DAX was 3.07% lower amid growing worries about the risk that some Southern European countries may have to restructure their debt. Investors will be closely watching government bond auctions in Greece and Spain later this week.

These fears have sparked talk about how soon central banks will have to start pumping yet more money into the economy.

That comes just days after the Bank of International Settlements called on policy makers to lift interest rates and withdraw stimulus instead of sustaining the West's love affair with debt.

The dollar was advancing as investors fled to safety as the split between policy makers becomes more obvious.

The euro was a cent lower against both the dollar and pound at $1.2153 and 80p.

Rajesh Patel, head trader at spread betting firm Spread Co said: 'The euro continues to slide as sterling holds up post-budget and the euro gets hammered. Concerns over the European economic situation have resurfaced with a vengeance and Greek and Spanish workers threaten to strike again.'

The single currency was also setting 9 year lows versus the Japanese Yen as worries about European banks resurface and markets tumble from Shanghai to New York.

In another sign that investors are worried about the pace of economic growth and the policy tools still available to lenders, the yield on 10-year US government bonds dropped to its lowest level since the spring of 2009 at 2.9652%.

The yield on two year treasuries hit an all-time record low of 0.61%.