Eurozone fear offsets US boost

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The FTSE 100 Index dropped 58 points to 5993.1

World markets have continued to slide as any cheer over improved unemployment data in the US was offset by the return of eurozone debt fears.

Wall Street’s Dow Jones Industrial Average dropped 0.6% despite the US Labour Department reporting the number of people who applied for unemployment benefits last week hit the lowest level in nearly three years.

The FTSE 100 Index dropped 58 points to 5993.1, led by the banking sector and miners, while the CAC-40 in France slipped 0.7% and Germany’s DAX fell 0.4%.

The concerns came as Portuguese 10-year bond yields jumped to 7.35% – the highest since the launch of the euro in January 1999.

This reignited concerns the Iberian country would be forced to follow in the footsteps of Greece and Ireland and turn to the European Union for bailout funds to revive its troubled economy.

Barclays, which is heavily exposed to the Iberian peninsula, fell more than 2% or 7.7p to 308.7p, while Royal Bank of Scotland dropped 0.5p to 43.8p and Lloyds lost 0.4p to 65p.

Sentiment in the US was also dampened by a raft of disappointing earnings reports from the likes of drinks giant Pepsi and consumer electronics firm Cisco.

In London, the Bank of England decided to hold interest rates at their historic low of 0.5%, but this had little impact on the stock exchange. The pound, however, was depressed against the US dollar at 1.60 following the announcement.

In corporate news, traders were disappointed by half-year results from drinks giant Diageo, which came in short of expectations. Chief executive Paul Walsh insisted “momentum was building” at the Smirnoff vodka and Guinness business, but this did not convince investors, and shares fell nearly 5% or 59p to 1193p.

Investors were also concerned about the impact of continuing economic weakness in Europe, where Diageo’s net sales fell 3% in the half-year.

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