FTSE drops below 5,200 as bank and recession fears mount

(Update) Britain’s FTSE 100 fell on Monday, extending the previous session’s sharp losses, as particularly weak data on the UK services sector intensified fears that developed economies will slide back into recession.

Following steep losses in Asian markets, the UK index of blue-chip shares sank 1.95%, or 103 points, to 5,189 and the Mid-250 index slipped 2.22, or 230 points, to 10,151.

A survey suggested earlier that Britain's dominant services sector has suffered its biggest slowdown since the foot-and-mouth crisis in 2001, in what one of its compilers branded an ‘eye-watering’ decline.

The falls in share prices also came after international lenders on Friday put Greece on notice that it could lose its next €8 billion (£7 billion) tranche of bailout loans if it failed to take action to catch up with its austerity programme.

Marc Ostwald, strategist with Monument Securities in London, warned that the eurozone debt crisis appeared to be heading for a car crash of ‘possibly spectacular’ proportions. National and regional governance issues were set to be exposed ‘for the calamity that they are,’ he added, as ‘the so-called leaders squawk, squeak and flap like headless chickens.’

Other stock markets in Europe also declined: Germany’s DAX index slid 3.12% to 5,366; France's CAC 40 index shed 3.34% to 3,044; and the FTSEurofirst 300 index of top European shares was 2.56 lower at 925.

Disappointing jobs data from the United States on Friday also weighed on global markets. Economists at Société Générale pointed out that a ‘perfect storm hit this summer’ and, as a result, growth in the US and Europe had virtually stalled.

‘Taming burgeoning public debts on both sides of the Atlantic will take time and we forecast a prolonged period of low growth for both the US and Europe, particularly as the dynamic emerging economies slow to more sustainable growth rates,’ they wrote in the French bank’s fourth-quarter global outlook.

Banks were the biggest losers, as US officials named senior officials at Royal Bank of Scotland (RBS.L), Barclays (BARC.L) and HSBC (HSBA.L) in litigation over the alleged mis-selling billions of dollars of mortgage-backed securities. RBS tumbled 2.2p to 22.6, Barclays slumped 11p to 154p, and HSBC gave up 13p to 512p.

Lloyds (LLOY.L) lost 1.7p to 31.4p, following reports that the lender was willing to sell up to a third more current accounts than it needs to in a peace offering to the Independent Commission on Banking.