Merkel win fails to impress markets
Markets were left unimpressed by Angela Merkel's election win in Germany after the triumph began to unravel as it emerged that she would have to build a coalition with leftist rivals.
A lack of immediate certainty about the shape of the new government in Berlin, coupled with fresh anxieties about the US Federal Reserve's quantitative easing (QE) programme, saw global indices slide into the red.
In the City, the FTSE 100 Index was down 39.1 points to 6557.4 while Frankfurt's Dax and the Cac 40 in Paris also fell.
On the currency markets, sterling was flat against the greenback at 1.60 US dollars while it rose one cent against the single currency to 1.19 euros amid the uncertainty in Berlin despite Mrs Merkel's triumph.
Her victory secured the Christian Democrat leader a third term as chancellor of the continent's dominant economy, promising continuity amid the background of the eurozone crisis.
It was seen as a strong endorsement of her handling of the turmoil that has threatened to engulf the single currency bloc but despite her strong showing Mrs Merkel was left with the immediate challenge of having to form a new coalition.
The demise of her current partners, the pro-business Free Democrats, means she faces the prospect of an alliance with the centre-left Social Democrats, or the Greens.
Michael Hewson, senior market analyst at CMC Markets UK, said: "Such are the idiosyncrasies of the German electoral system that it could well be another two months before we have any idea as to what form the new government will take."
Encouraging manufacturing data from China and other economic figures in Europe failed to lift the mood, especially as new jitters emerged from the other side of the Atlantic over the prospect of tapering QE.
Last week's surprise decision not to begin tapering was starting to be replaced by fears it might start as soon as next month.
There was also anxiety amid fraught negotiations in Washington over the US government budget, as the Dow Jones Industrial Average in New York fell into the red in early trading.
In corporate news in London, British Gas owner Centrica fell 5.2p to 397p after it said it would take a £240 million hit on its decision to shelve two huge gas storage projects in East Yorkshire and the North Sea.
It blamed the decision on weak economics and the Government's failure to subsidise new gas storage facilities. The move will leave the UK increasingly reliant on imported gas, with only around 15 days of gas supply in storage.
Shares in Irn-Bru drinks company AG Barr fell 3p to 522p after it reported a drop in half-year profits due to the costs associated with its failed merger attempt with rival Britvic. Britvic shares jumped more than 2% or 14.5p to 569p.
The biggest risers on the FTSE 100 were Croda International up 47p to 2727p, Rolls-Royce up 9p to 1115p, Diageo climbing 16.5p to 2050.5p and GlaxoSmithKline up 12.5p to 1589.5p
The biggest fallers on the FTSE 100 were Lloyds Banking Group, down 2.3p to 73.9p, Shire down 73p to 2520p, Barclays off 7.1p at 266.3p and Tullow Oil down 26p to 1049p.