The FTSE 100 has continued to slump on geopolitical tensions, with the prospect of US military strikes against Iraq militants sparking further anxiety for investors already worried about the mounting tensions between Russia and the West.
The UK blue-chip index fell 47 points, or 0.7% to 6,551 after US president Barack Obama authorised strikes air strikes against Islamist militants.
Obama said he had given the green-light to the strikes to prevent the potential for 'genocide' against thousands of minority Iraqis in the north of the country driven to a mountain-top refuge.
The move has taken its toll on markets already weighed down by the mounting tension between Russia and the West, with the FTSE 100 heading towards a near four-month low.
'The geopolitical landscape already looks explosive with tensions rising in Ukraine and with Russia but the appearance of another flash point and the possibility of being drawn into something deeper in Iraq is set to drag sentiment even lower,' said Jonathan Sudaria, dealer at Capital Spreads.
Almost all sectors were down in a broad-based slump of the index, with the number of stocks in positive territory barely into double figures. Defensive stocks such as supermarkets Tesco (TSCO) and Morrisons (MRW) were among the few to make gains, rising 0.9% to 246p and 0.5% to 168.1p respectively.
Gold and silver miner Fresnillo (FRES) was the top FTSE 100 riser, jumping 2.1% to £10.01 as the geopolitical tensions prompted a surge in the gold price, with investors rushing to the safe haven asset. Gold climbed to a three-week high of $1,316.60 an ounce after Obama's announcement, its highest level since 18 July.
'Mid cap' stock Afren (AFRE) meanwhile fell 4.7% to 94.9p, as the fighting in Iraq forced the oil group to suspend operations at its Barda Rash oilfield in Iraqi Kurdistan.
The stock has fallen heavily over the past few weeks, after the oil explorer announced it had temporarily suspended chief executive Osman Shahensah and chief operating officer Shahid Ullah pending an investigation into payments.
'Small cap' stock Hyder Consulting (HYC) rose 8.6% to 700.5p on news that Japanese group Nippon Koei UK Topco (1954.T) was attempting to gazump Dutch group Arcadis' (ARDS.AS) 650p-per-share takeover bid with a 680p-per-share offer. Arcadis said it was considering its position.