The FTSE 100 was registering triple-digit losses by Thursday lunchtime as uncertainty at the US Federal Reserve dampened risk appetite and spooked markets into a sell-off.
London's benchmark index rose to highs not seen since January 2008 yesterday after minutes from this month's Bank of England Monetary Policy Committee (MPC) meeting showed that, while still outvoted, more members - including Bank Governor Sir Mervyn King - called for additional stimulus for the UK economy.
After breaching the 6,400 level on Wednesday, the Footsie was trading over 1.5% lower this morning, firmly below the 6,300 mark.
Minutes from the latest Federal Reserve meeting released last night showed that some policy-makers Stateside have begun to question current quantitative easing (QE) measures, indicting a more hawkish tone among the Federal Open Market Committee (FOMC).
"The Fed minutes have been particularly disappointing, given that the Fed previously gave the impression that as long as inflation remains under control, which it is, the ultra loose monetary policy would continue until we see a big improvement in the labour market, which we haven't seen," said market analyst Craig Erlam from Alpari.
"The markets have priced in another 12 months or so of highly accommodative policy from the Fed, so if they pull the plug at this early stage you can wave goodbye to the S&P 500
and Dow 30 hitting those all time highs. The interesting thing now will be to see how much of the rally has been supported by central bank stimulus and how much by an actual improvement in the economic outlook."
Speeches from the presidents of the New York and San Francisco Federal Reserves this evening are likely to be closely watched, as they could seek to moderate or add detail to last night's minutes.
Plenty of economic data to digest
Pressuring markets lower this morning were purchasing managers' indices (PMIs) from the Eurozone which showed that the downturn in the region steepened in February. The Eurozone composite PMI index fell to 47.3 points from January's reading of 48.6, while the consensus had expected to see an improvement to 49.0 points.
In domestic news, UK public-sector borrowing excluding financial interventions showed a better-than-expected surplus of £11.4bn in January, according to the Office for National Statistics, up £5bn from a year earlier.
In the States, jobless claims figures, CPI inflation and the Philly Fed index are scheduled for release later on.
FTSE 100: BAE a rare bright spot after initiating buyback
UK defence giant BAE Systems may have posted a fall in sales and earnings in 2012, but shares
gained strongly this morning after the company initiated a share buy-back worth £1.0bn over the next three years.
Miners were under the weather this morning as metals prices weakened in the face of a stronger dollar
after the FOMC minutes. Gold prices are now trading at a seven-month low. Kazakhmys, ENRC and BHP Billiton were among the worst performers, with the latter hit by a downgrade from Citi to 'neutral'.
Oil producer Tullow fell after saying that it was forced to plug and abandon a well in Uganda after it couldn't find hydrocarbons.
TV and broadband giant BSkyB was lower despite saying that it is launching a new Sky Movies Disney channel next month. The company also announced that Sky Movies has received first subscription pay-TV movie rights from Disney.
B&Q owner Kingfisher was subdued after reporting a decline in like-for-like sales in the fourth quarter as it battled against weak consumer confidence, unfavourable foreign exchange
and poor weather in the UK.
FTSE 250: CSR impresses with full-year numbers
Shares of wireless technology firm CSR stormed ahead after it posted record full-year revenue and underlying gross margin, boosted its dividend payment and said it expects good growth in core revenues for 2013.
High Street betting shop Ladbrokes was lower despite registering record revenues in UK retail in 2012 and saying that 2013 has had a "promising" start. Analyst Simon Davies from Canaccord Genuity said that evidence of a recovery online "will be required to spark a material further re-rating".
Transport group Go-Ahead fell after saying that while full-year profits will be in line with forecasts, second-half trading at its Rail division would remain "challenging".
FTSE 100 - Risers
BAE Systems (BA.) 348.90p +5.03%
Rexam (REX) 504.50p +0.50%
Sainsbury (J) (SBRY) 335.50p +0.12%
Aviva (AV.) 354.30p +0.08%
FTSE 100 - Fallers
Kazakhmys (KAZ) 668.00p -4.30%
ARM Holdings (ARM) 915.00p -3.84%
BHP Billiton (BLT) 2,111.50p -3.30%
Xstrata (XTA) 1,111.50p -3.22%
GKN (GKN) 254.90p -3.15%
Glencore International (GLEN) 370.45p -3.11%
Aberdeen Asset Management (ADN) 428.30p -3.08%
Rio Tinto (RIO) 3,536.50p -3.02%
Evraz (EVR) 272.40p -2.96%
Vedanta Resources (VED) 1,220.00p -2.94%
FTSE 250 - Risers
CSR (CSR) 426.90p +10.77%
Sports Direct International (SPD) 435.30p +4.64%
Bumi (BUMI) 395.30p +4.22%
Hiscox Ltd. (HSX) 490.70p +0.57%
IP Group (IPO) 128.60p +0.47%
Britvic (BVIC) 416.50p +0.36%
BlueCrest AllBlue Fund Ltd. GBP
Shares (BABS) 174.00p +0.23%
Renishaw (RSW) 1,820.00p +0.17%
Stobart Group Ltd. (STOB) 92.70p +0.11%
BH Global Ltd. GBP Shares (BHGG) 1,180.00p +0.08%
FTSE 250 - Fallers
Ferrexpo (FXPO) 251.90p -9.06%
New World Resources A Shares (NWR) 277.30p -6.32%
Moneysupermarket.com Group (MONY) 198.30p -5.35%
Henderson Group (HGG) 160.00p -5.33%
Afren (AFR) 145.50p -5.21%
Bank of Georgia Holdings (BGEO) 1,351.00p -4.52%
Savills (SVS) 519.50p -3.89%
Imagination Technologies Group (IMG) 498.80p -3.89%
Jupiter Fund Management (JUP) 333.30p -3.67%
Synthomer (SYNT) 207.10p -3.63%