Markets slump amid Bernanke warning

Global markets have taken a fresh hammering after bleak comments from US Federal Reserve chairman Ben Bernanke stoked recession fears.

There was also a lukewarm response to measures announced by the Fed under which it will launch a 400 billion US dollars (£253 billion) programme to try to reduce borrowing costs for firms and individuals by buying long-term bonds.

With Mr Bernanke warning that there are "significant" risks to the US economy, the FTSE 100 Index slumped more than 4%, or 233.4 points, to 5054.3. Markets across Europe followed suit as investors braced themselves for more turbulence when Wall Street opens later in the session.

Mining stocks led the rout in London as investors feared a slump in demand for mineral resources. Fallers included Kazakhmys, which lost 10% of its value with a drop of 96.75p to 869.25p, while Antofagasta was down by 105.5p to 1008.5p and Rio Tinto dipped 326.5p to 3062p.
Financial stocks were also battered after Moody's downgraded the credit ratings on three big US banks and argued that the US government is more likely to allow a major institution to fail because contagion could be contained.

Barclays was down 7%, or 10.4p, to 142.8p, Lloyds Banking Group slumped 2.4p to 33.8p and Royal Bank of Scotland dropped 0.8p to 22.6p. Among the insurers, Prudential was hardest hit after shares fell 44.5p to 552.5p, off 7%. Even luxury goods group Burberry suffered in its sell off, with its shares nearly 10% lower, off 149.5p at 1358.5p.

There were no risers in the FTSE 100 Index but in the second-tier easyJet made impressive progress after it announced plans for a shares windfall.

In a move set to placate founder and major shareholder Sir Stelios Haji-Ioannou, the airline announced a £150 million special dividend, on top of a £40 million maiden dividend for the year to September 30.

It added that cost cuts and good demand on city routes used by business and weekend break travellers meant profits for the year are likely to be between £240 million and £250 million, up from previous expectations. Shares rose 7% despite the wider market turbulence, up 20.85p to 332.85p.

The only other notable gain in the FTSE 250 Index came from JD Sports Fashion, which added 13.75p to 844.25p in the wake of half-year results on Wednesday.