The London market has suffered another sharp fall as mounting tensions in the Korean peninsula added to fears surrounding the Irish bailout.
The FTSE 100 Index dropped more than 1% at one stage – to its lowest level in more than a month – before settling 36.9 points lower at 5643.9.
The falls came as South Korea confirmed it had returned fire on North Korea, after its neighbour launched dozens of artillery shells at one of its border islands and killed two marines.
Asian stocks slipped by 3% following the attacks, which fuelled negative sentiment across global markets.
The strengthening dollar triggered a drop in commodity prices, which in turn saw mining stocks falter. Shares in FTSE 100 companies such as Vedanta Resources, Antofagasta, Kazakhmys and Lonmin topped the fallers board.
The Korean woes followed further unrest in Ireland, where the government finally conceded it needed substantial financial assistance led by the European Union to pull the country out of its debt crisis.
However, traders’ concerns were not eased by this development, as worries over potential political fallout intensified.
Irish minority parties suggested they were unwilling to back an austerity budget – which is a condition of receiving emergency funds – throwing the situation into further turmoil.
This kept the banking sector in the UK under pressure, with shares in Lloyds, which has significant business Ireland, down more than 1%, and Barclays down nearly 2%.
Fears that the Irish crisis will spread across Europe also sparked a drop in the value of the euro across most major currencies, including the pound, dollar and yen.
