The spectre of a protracted public health scare swept through the London market last night, unsettling Carnival, the cruise operator, which retreated by almost 7 per cent amid concerns about the impact on the travel industry.
The worries were prompted by the outbreak of swine flu, which has claimed numerous lives in Mexico, and sparked fears of a pandemic. Carnival, which owns P&O cruises, was singled out as the most "immediately vulnerable stock", as Mexico is often the first port of call for travellers to the Caribbean.
Evolution's analyst Nigel Parson also highlighted the fact that "there is a public perception that ships are vulnerable to the spread of infections".
He added, reiterating his "sell" stance on the stock: "Given how quickly flu can spread around the world, then it could be disastrous for the cruise, hotel and airline [industries], which are already creaking under the pressures of recession."
The fears sent Carnival sliding to 1,807p, down 132p, while InterContinental Hotels, which Evolution said was the most vulnerable in the hotels sector if the flu spreads, fell 4.2 per cent or 28.5p to 643.5p.
GlaxoSmithKline, on the other hand, vaulted to pole position in the FTSE 100, as traders anticipated increased demand for Relenza, the company's anti-viral drug, which has been found to work against swine flu.
Since the start of the current outbreak, Glaxo has supplied 100,000 packs of Relenza, and 170,000 doses of its seasonal influenza vaccine, to the Mexican authorities. Last night, the company, whose share price swelled to 1,063p, up 5.7 per cent or 57p, said it was monitoring the situation and looking at ways of ramping up production of the drug.
Panmure Gordon, which weighed in on Glaxo, said while the company stands to benefit from increased demand, "the global damage to the economy from a flu pandemic should also adversely affect all pharmaceutical companies, so we are cautious about our reaction to this news".
The wider market was also cautious in early trading, with the FTSE 100 touching a session low of 4,088.67. But the benchmark recovered ground, rising 11.02 points to 4,167.01, thanks to strong gains in the financial sector. Credit Suisse, which upgraded its stance on UK markets to "overweight" from "benchmark", did its bit to lift the mood, saying that among other positive factors the country "now seems to have a workable bank insurance scheme".
The FTSE 250, although off earlier lows, remained weak, closing down 89.82 points at 7,279.93.
Aviva boosted sentiment in the life insurance sector, advancing to 287p, up 5 per cent or 13.7p, after revealing a larger-than-expected capital cushion with its first-quarter update.
Deutsche Bank, which was among the first to question the strength of UK life insurance capital buffers, said the company had "shot the lights out" by announcing a cushion of £2.5bn.
"To some respect, this looks to have been anticipated by a 15 per cent move up in the shares on Friday, but nonetheless the solvency strength is way ahead of expectations," the broker said, adding that the figure was some £600m above its estimates, which in turn were above consensus.
The announcement helped Legal & General add 3.4 per cent or 1.7p to 52p, while Standard Life strengthened by 3.3 per cent or 6.2p to 195p.
Elsewhere, the supermarket group J Sainsbury climbed to 328p, up 4.75p, amid renewed chatter – played down by traders – about a possible merger with Marks & Spencer, which was 4.5p behind at 337.25p.
Also on the downside, Liberty International, down 3.9 per cent or 17.7p at 433.25p, was held back by rumours of a rights issue. After the close, the company announced plans to raise approximately £500m-£600m through a share placing and open offer of new shares.
On the second tier, Enterprise Inns fell back to 118.25p, down 5.6 per cent or 7p, after new data from the British Beer and Pub Association revealed that beer sales were down 8.2 per cent in the first quarter. Compared with last year, 1.7 million fewer pints were consumed between January and March.
The news also weighed on Mitchells & Butlers, which eased to 267.25p, down 4.6 per cent or 12.7p, and Punch Taverns, which was 4.3 per cent or 4p behind at 89p.
On the upside, Northern Foods firmed 1.5p to 58p, thanks to Citigroup, which added the food producer's stock to its key "buy" list.
Debenhams, which rallied strongly after posting better-than-forecast results last week, was up another 1p at 85p after UBS moved the stock to "buy" from "neutral".
The broker also upped its target price, to 115p from 60p, which was the result of factoring in a 40 per cent chance of a £300m rights issue at a 40 per cent discount.
Among smaller companies, JJB Sports surged 37 per cent, or 6.75p, to 25p after creditors backed the proposed company voluntary agreement, which will keep the sports retailer in business. Shareholders will get the chance to vote on the proposals later this week.