FTSE 100 falls 2.6% amid global sell-off

London stock brokers (file photo) Image copyright AFP

(Close): UK shares fell sharply in the first trading session of the new year, as European markets dropped in the wake of steep losses in China.

The FTSE 100 index was down 161.83 points, or 2.6%, at 6,080.49.

In Germany, the Dax index fell more than 4%, while France's Cac 40 index was 2.6% lower.

Earlier in Asia, trading in China had been suspended after markets fell 7%, triggering new "circuit breakers" designed to limit volatility.

One factor cited for the sharp falls was another weak survey of China's manufacturing sector.

The Caixin/Markit manufacturing purchasing managers' index (PMI) slipped to 48.2 in December, marking the 10th consecutive month of shrinking factory activity in China. A figure below 50 indicates contraction.

"This swift return to the 2015 template of worrying about China looks to have been the trigger for the sell-off in Chinese equities," said Alastair McCaig, market analyst at IG.

The disappointing survey results hit shares of mining companies in London, as China is a major importer of raw materials. Shares in Anglo American fell 7.2% while Glencore was 5.8% lower.

Confidence among investors was also hit by worries over rising tensions in the Middle East, with Saudi Arabia breaking off diplomatic ties with Iran.

On the currency markets, the pound fell half a cent against the dollar to $1.4682, but rose three-tenths of a cent against the euro to €1.3605.