Inflation fears send shares sliding

The London market suffered sharp falls today amid fears over the cost of living and the deepening debt crisis across the eurozone.

The FTSE 100 Index closed more than 2% lower after an unexpected rise in the rate of inflation to 3.2% in the UK in October spooked investors.

Concerns over inflation abroad were also weighing on the minds of traders. South Korea's central bank lifted interest rates, which fuelled speculation that China would tighten its monetary policy to cool its own cost of living figure.

The FTSE 100 mining sector - which includes companies such as Kazakhmys, Antofagasta and Xstrata - is particularly vulnerable to worries surrounding Chinese monetary policy and featured prominently on today's fallers board.

The banking sector - including Lloyds, Barclays and HSBC - took a hit as well, as sovereign debt crises across Europe came under the spotlight in Ireland, Greece and Portugal.

Ireland was under intense European pressure to accept a massive financial bail-out - not just to rescue the Irish economy but to save the euro itself.

But ahead of talks between the 16 eurozone nations, Dublin was still insisting it needed no help from either the EU or the International Monetary Fund.

Royal Bank of Scotland - parent of the Ulster Bank, which is exposed to the Irish woes - saw shares drop more than 3%.

Today's losses on the Footsie, the sharpest fall since August, put an end to a strong run which saw the market hit two-year highs.

Michael Hewson, market analyst at CMC Markets, said: "European markets are deep in the red today on the back of increasing concerns about escalating fiscal problems in Europe, as well as fears of policy tightening in Asian economies which has seen resource stocks start to slip back.

"Fears about rising inflation have seen central banks start to look at tightening measures as price pressures start to bleed through supply chains.

"Last night's rate hike by the Central Bank of South Korea, though widely expected, has reinforced fears of further rate hikes in China, especially given that the Chinese have been reported to be considering price controls on food."

A handful of companies bucked the trend today and finished ahead. Packaging group Rexam enjoyed a rare spell in the limelight near the top of the leader board, after announcing it would hit performance targets this year.