The FT-SE index of 100 leading London shares dropped by more than 41 points at one stage before finishing 36.2 points down, at 2863.9. Shares also weakened after lingering hopes of a further cut in bank base rates faded and on concern over a widening trade deficit in February.
Britain's trade gap with countries outside the European Community increased by pounds 274m to pounds 1.3bn in February as a surge in imports outweighed higher exports, according to the Central Statistical Office.
A Gallup survey meanwhile showed a slight rise in consumer confidence in the run-up to the Budget. The percentage balance of consumers expecting the economic situation to worsen in the coming year dropped to 13 in March from 18 in February.
In Frankfurt, apprehension over developments in Russia - especially concern that the military may step into the political arena - prompted a 36.41 point decline in the DAX index, to 1,657.11. Wall Street shares also fell, with the Dow Jones Industrial Average dropping by 8.10 points to 3,463.48 by the close.
In Paris, despite the overwhelming victory of the centre-right coalition in the first round of parliamentary elections last Sunday, the CAC-40 Index fell by 23.41 points to 1,939.28.
The French franc was little affected by the prospect of a right-of-centre government taking office after next Sunday's final round of parliamentary elections. The franc ended at Fr3.4032 to the German mark, up slightly from Fr3.41 on Friday and compared with a Fr3.4305 floor in the European exchange rate mechanism.
Fears of a speculative attack proved premature with investors unwilling to bet against the franc before the results of a German securities repurchase pact tomorrow, where a cut from 8.25 per cent is expected.
Even if the Bundesbank allows the repo rate to fall, however, few analysts expect an attack on the French currency to be delayed much longer. Elsewhere in the currency markets there were few indications that worries over Russia have had any discernible impact. The pound ended little changed at DM2.4328, apparently unaffected by concern over Russia or disappointment over the February trade figures. The dollar also closed little changed at DM1.6345.
Excluding oil and erratic items, Britain's non-EC trade deficit was pounds 904m in February, up from pounds 797m in January but lower than December's figure. Figures for trade within the EC are being delayed until July, because of the abolition of customs declarations with the completion of the single market last year.
Import volume in the three months to February was 4 per cent up on the previous three months, with the same increase seen for exports, excluding oil and erratic items. Imports of finished manufactures jumped by 16 per cent in the three months to February, the largest increase on record.
The devaluation of the pound last September has triggered a dramatic surge in import prices, with a rise of 6 per cent in the three months to February. Export prices have also picked up but less quickly.
'We have probably seen the bulk of the deterioration in the deficit,' said Ian Shepherdson, of Midland Global Markets. The rise in import prices should soon start to bear down on volume growth, although the effect may be offset in part by the boost to import demand from recovery.
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