Moves by Italy’s premier-designate Mario Monti to form a new cabinet failed to cap the country’s soaring borrowing costs and restore confidence to the markets today.
The FTSE 100 Index closed 1.6 points lower at 5,517.4 as Italy’s benchmark 10-year bond yields hovered above 7% amid increased uncertainty over its political future.
Banking and insurance shares were among the biggest losers as investors’ appetite for risk withered amid the escalating eurozone gloom.
Barclays was down 2.9p at 171.2p and Royal Bank of Scotland fell 0.7p to 21.2p, while Aviva lost 2.9p at 312.1p.
Mining and energy stocks were also dented by the growth worries, with Essar down 13.5p at 273.5p and Glencore off 15.9p at 412.7p.
Burberry was the biggest faller however after being hit by concerns that recent strong demand for luxury goods will tail off, despite a 26% jump in first-half profits and a pledge to target more growth markets. Its shares were down 5%, or 75p at £13.47.
In the FTSE 250 Index, shares in Cable & Wireless Worldwide suffered further heavy falls after it axed future dividend payments in order to preserve its balance sheet. Shares were 7.9p lower at 22.3p, a drop of 26%.
Meanwhile, budget airline easyJet was down 3% after it warned it will become harder to pass higher fuel prices on to passengers. Shares were down 9.6p at 356.4p.
The biggest Footsie risers were Smith & Nephew up 20p at 592.5p, Fresnillo ahead 55p at £18.67, Tate & Lyle up 12.5p at 684p and Capita Group ahead 12p at 674p.
The biggest Footsie fallers included Lloyds Banking Group down 1.1p at 27.3p.
Alan MacPhee, of investment manager and financial planning specialist Brewin Dolphin in Aberdeen, highlighted that risers included Premier Oil, which added 1.25% up to 363.55p.
Among the fallers, AG Barr shed 4.49% to close at 1,137.5p and Faroe Petroleum also ended the day in negative territory, declining 1.82% to 148.125p.