Worst quarter for FTSE 100 since 2002

Fresh fears of a global recession pushed London's leading shares index down more than 1% today, capping off its worst quarter of trading for nine years.

The FTSE 100 Index fell 68.4 points to 5128.5 after worrying Chinese and US economic data added to fears about a Greek default.

Today's fall means London's blue chip shares have fallen 13.7% in the third quarter of 2011 - its worst performance since 2002 when the dot-com boom ended.

The UK's biggest companies have had some £212 billion wiped off their value in the past three months.

World markets have been hugely volatile in recent weeks as investors panicked that the US and eurozone would be unable to keep up with payments on their huge debts and would lead the world back into recession.

Today's falls were caused after a monthly survey by banking giant HSBC showed that China's manufacturing remained stagnant in September due to sluggish demand both at home and abroad.

Poor data from the US added to the gloom today after the Commerce Department said incomes fell for the first time in nearly two years in August.

This added to fears about the eurozone debt crisis, as Greek Prime Minister George Papandreou pressed European leaders, including French President Nicolas Sarkozy, to release the next €8 billion (£7 billion) bailout instalment for his country.

Greece has warned it will default on its debt payments if it does not receive the money, which would create financial chaos.

Markets across the globe fell amid the economic gloom. Germany's Dax lost more than 2%, the Cac-40 in France shed 1.5%. The Dow Jones Industrial Average in the US was down 0.5% as the London market closed.

Louise Cooper, analyst at BGC Partners, said the markets were "all getting tired with trawling through the various conflicting comments from the many politicians and bankers".

The German parliament yesterday voted in favour of a beefed-up European rescue fund, which initially soothed some concerns over the crisis but optimism faded.

Investors are still troubled by the prospect of a debt default in Greece as the stand-off between the troika - the European Central Bank, International Monetary Fund and European Commission - and Greek officials over its fiscal package continued.

The uncertainty was heightened when striking civil servants forced debt inspectors in Athens to postpone talks to decide whether Greece is making enough progress with its austerity measures.

Ms Cooper continued: "The two potential outcomes for this crisis are very different.

"Scenario one is where Germany gets its cash out and writes a very large cheque, despite the legal, constitutional and political problems of doing so.

"Scenario two sees some sort of implosion, possibly involving a Greek default and a banking system meltdown.

"Given these two potentially extreme outcomes, equities swing wildly from optimism to pessimism in a schizophrenic manner."

The apprehension in the eurozone grew when Spain announced it had nationalised three troubled banks that failed to meet new capital requirements.

The Spanish government now owns more than 90% of the shares in Unnim, CatalunyaCaixa and NovacaixaGalicia after capital injections.

The banking sector in the UK was one of the worst hit today with Barclays down 5%, HSBC off 3% and Royal Bank of Scotland falling 4%.

Ben Critchley, sales trader at IG Index, warned more volatility was in store for the sector.

He said: "The eurozone sovereign debt crisis still has the potential to cause upset for some time yet however - it's set to put a liquidity squeeze on banks so this sector is going to be very much in the limelight moving ahead."

The pound rose to 1.16 against the euro after the single currency was hit by weak retail figures from its biggest economy, Germany. Sterling was also up against the dollar at 1.56.

Gold rose to 1627 US dollars an ounce after it was again boosted after being seen as a safe haven amid the financial chaos.

Meanwhile, miners, such as copper giant Kazakhmys, and luxury goods firms, including Burberry, suffered as the renewed fears over China's economy surfaced.

The weak manufacturing survey from HSBC came as a report said the cost to insure Chinese government debt against default had risen to its highest level since March 2009.

Kathleen Brooks, research director at Forex, said: "The economic slowdown in China is threatening to drag the Asian powerhouse into the sovereign fray."

PA