Eurozone crisis: FTSE slumps 2% leaders fail to inspire confidence
The London stock market continued to slide today as traders digested emerging details of a multitrillion-pound eurozone rescue plan.
The FTSE 100 Index was nearly 2% lower as crisis talks between world finance leaders in Washington over the weekend failed to inspire traders.
Emergency measures to rescue the euro, costing two to three trillion euros (£2.6 trillion), and potentially allowing an orderly debt default in Greece, could be revealed in a matter of days.
But Cameron Peacock, market analyst at IG Markets, said: "The key demand from investors is for action as opposed to words."
Britain's top 100 companies saw £78 billion wiped from their value last week as the sovereign debt crisis and America's creaking public finances fuelled fears of another global recession.
Pumping cash into a number of Europe's beleaguered banks is the cornerstone of a rumoured three-pronged plan being discussed to save the single currency.
The shoring up of vulnerable banks would allow Greece to partly default on its debt - wiping billions of pounds from the country's balance sheet.
The third part to the plan involves providing additional firepower for the European Financial Stability Facility (EFSF) - the bailout fund - which could cost trillions of euros.
But analysts warned that investors were likely to remain sceptical.
Mr Peacock said: "It's becoming increasingly difficult to give credibility to suggestions that a solution can be found that won't see many getting their fingers burnt as a result."
The weak start on the FTSE 100 Index follows a similarly poor performance in Asia, where Japan's Nikkei 225 Index fell more than 2% and the Hang Seng Index in Hong Kong was down nearly 3%.
Chancellor George Osborne warned over the weekend that decisive action was required within six weeks as the world had reached a "dangerous phase" amid fears of a renewed recession.
But he said he was "optimistic" that the gathering of colleagues from the G20 nations and a meeting of the International Monetary Fund (IMF) had made progress.
Elsewhere, IMF managing director Christine Lagarde moved to reassure markets and said the annual meeting had seen a "common diagnosis and a shared sense of common purpose".
The situation remained "precarious", the IMF noted, and it suggested it may not have the funds to bail out larger eurozone economies if the crisis is allowed to spread.
The euro rescue plan could involve the injection of funds into at least 16 continental banks to provide the equivalent of reserves banks can draw on if needed.
The proposals would lead to an orderly default by Greece and allow the country to remain within the eurozone, although private sector creditors would end up bearing a loss as high as 50%.
Political leaders and economists are unsure about the impact an orderly default would have on the banks, even if the measures discussed over the weekend are put into action.
Later this week, the focus will return to Greece as the European Central Bank, European Commission and IMF - the troika - will head back to Athens for the latest round of talks with officials over the next tranche of its 8 billion euro loan instalment.
A late rally on Friday was not sufficient to prevent the FTSE 100 suffering its second worst weekly fall this year, losing 5.65%,
Last week's rout, which included a 4.7% daily fall on Thursday, was driven by a gloomy outlook from America's central bank, weak Chinese and eurozone economic data, and the enduring sovereign debt crisis.
US Federal Reserve action to ensure interest rates remain lower for longer in the US - dubbed Operation Twist - disappointed traders who had been hoping for another round of quantitative easing.