Leading shares index back below 4000

Worse-than-expected figures showing the UK plunged into recession saw the FTSE 100 Index sfall below the 4,000 figure today as investors fretted over the dire economic outlook.

The UK economy contracted by 1.5 per cent in the fourth quarter of the year, according to official data which sent the Footsie sliding down 48.7 points to 4003.5 at lunchtime. Early this afternoon it was 3982.5.

Despite the widely anticipated official confirmation that the UK was in recession, today's figures from the Office of National Statistics (ONS) showed the plunge was worse than the declines seen in the recession of the early 1990s and the biggest fall in more than 28 years.

The market, which had been higher than 4,000 prior to the latest statistics, dipped below the psychologically important level before making a slight recovery.

The pound also suffered a fresh slump - down to its lowest level against the dollar since 1985.

Barclays was the heaviest faller, down for a ninth session in a row by 9.6p to 49.6p amid continued fears that it will have to raise more capital.

The latest slump came despite attempts by chief executive John Varley to reassure investors, including his forecast that the bank will make a profit for 2008 after taking all necessary writedowns on toxic loans.

Among rival firms, Lloyds Banking Group fell 1.8p at 47.3p and HSBC dropped 9.5p to 517.5p. Royal Bank of Scotland was unchanged at 0.4p at 11.8p.

Insurers were also struggling due to ongoing worries over capital requirements and ahead of trading updates due next week. Aviva was off 21.25p at 261.75p, while Legal & General shed 3.7p to 55.1p and Prudential fell 17.75p to 288.75p.

Supermarkets saw gains despite ONS figures showing the overall value of retail sales last month fell by the most since records began in 1986. Sainsbury's rose 8p to 308.5p, while Tesco was up 3p at 352.9p.

Morrisons recovered from yesterday's weak session to climb 5.5p to 258.25p. Its shares dropped yesterday despite posting industry-leading sales figures for the Christmas period.

One of the biggest decline in the FTSE 250 Index came from Barratt Developments after Citigroup cut its recommendation on the housebuilder to sell. Shares dropped nearly 13 per cent or 10p to 69.5p.

In corporate news, pubs chain Marston's rose 3.5p to 100.75p after it reported a 6 per cent drop in like-for-like profits at its tenanted division, a performance analysts said compared favourably with rivals Punch Taverns and Enterprise Inns.

Punch lost gains seen yesterday to decline 3.25p to 36p, a fall of 8 per cent.