London stocks fall further into correction on China slowdown fears

The latest session saw the main index in Shanghai dive by a further 8.5%, deepening its recent heavy slump and meaning it has lost all its gains for 2015.

That spooked the investors in London, although the FTSE 100 is pulling back now, down just 4.6%.

On Wall Street, the Dow fell 530.94 points, or 3.12 per cent, to end at 16,459.75, following a 2 per cent slide on Thursday.

European markets suffered marked falls in early trading on Monday as concerns over China’s economy triggered an “almost panicky sentiment’ among investors overnight.

“. Investors brushed off a change in rules in China that will now allow pension funds managed by local governments to invest in stocks. Australia’s ASX 200 tallied up its biggest one-day sell for over six years, falling 4.09% to 5,001.3.

The sole riser on the FTSE 100 was RSA Insurance (LON:RSA) after talks with Zurich progressed well over the weekend, with a deal likely to value the company at £5bn.

The broader FTSE 350 mining index languished near its lowest level since 2009, however.

Losses on Germany’s DAX were headlined by a 4.3% fall at energy utility RWE (RWEOY) and a 3% fall in Heidelberg Cement (HDELY). “Global markets are in panic mode as the full scale of China’s slowdown becomes clearer”, Angus Nicholson, market analyst at IG Index, said. Also, following the nuclear agreement reached last month, expectations that Iran will return to its position as one of the world’s biggest oil suppliers have been boosted, after UK Foreign Minister Philip Hammond on Sunday reopened the country’s embassy in Tehran, four years after it was stormed by protesters angry at Britain’s backing of sanctions against Iran over its nuclear programme.

The minutes “did not shed much more in the way of solid news on the timing of the first rate hike which now might be complicated by Chinese developments and increasing market volatility“, said Neil MacKinnon, economist at VTB Capital.

“The People’s Bank of China remains in ‘see what sticks’ mode, and so far nothing has been able to provide an adequate tourniquet for the market-wide bloodshed that has only intensified this Monday”, noted Connor Campbell, an analyst at London-based Spreadex. Bunzl (LON:BNZL) is the only FTSE 100 company scheduled to release results this morning.

The Markit “flash” purchasing managers’ index revealed Chinese manufacturing activity shrank for a sixth straight month in August, falling to 47.1 from July’s final reading of 47.8 and remaining below the threshold of 50 that separates expansion from contraction.