Weaker dollar hits world markets

London's leading FTSE 100 index dropped by more than 2%, closing below 6,000 points to its lowest level since March.

European shares saw their biggest one-day percentage fall in almost two years, with the Frankfurt Dax and Paris Cac indexes closing down more than 2%.

The depressed outlook across Europe was mirrored in the US, where the key Dow Jones index closed down more than 1%.

Inflation fears

"There are a lot of macro risks which could have a strong impact on the markets - the weak dollar, added to inflation fears, could hit European exporters"
Teun Draaisma, Morgan Stanley strategist

Losses in London were led by major mining stocks, including Anglo-American and Rio-Tinto, as the weakening dollar took its toll on UK-listed companies which trade in dollars.

Against the pound, the dollar was down more than 0.55% at £0.52, while against the euro it was down 0.58% at 0.77 euro.

"There are a lot of macro risks which could have a strong impact on the markets," said Morgan Stanley strategist Teun Draaisma.

"The weak dollar, added to inflation fears, could hit European exporters - in particular autos."

London's Footsie index closed down 129.90 points at 5,912.1, Germany's Dax index finished down 138.44 points at 5,916.3, while France's Cac index closed down 112.49 points at 5,150.5.

In New York, the Dow Jones Industrial Average closed down 119.74 points at 11,381.

The tide of falling stock markets in Europe followed on from earlier losses in Asia and overnight losses on Wall Street on Thursday.

Japan's Nikkei 225 index slid to its lowest close in seven weeks after the yen rose to an eight-month high against the dollar, hitting major exporters such as car giant Toyota.