FTSE 100 index drops 1.1 percent

Britain's top share index dropped on Friday, reversing modest early gains, led by weaker banks and commodity stocks as risk aversion returned after the latest US jobs data disappointed, raising fears about the health of the world's largest economy. At the close, the FTSE 100 was down 63.97 points, or 1.1 percent, at 5,990.58, back below the psychologically important 6,000 level recaptured earlier in the week.
The FTSE 100 index, however, has still risen over 5.5 percent since touching three-month lows 12 days ago, driven mainly by hopes that Greece will avoid defaulting on its debts. Miners led the blue chip retreat, tracking weakness in base metal prices as demand worries were reignited by the US data. US nonfarm payrolls rose only 18,000 in July, the weakest reading since September, well below consensus expectations for a 90,000 rise.
"Even given that this data is volatile and subject to large revisions, this number is worrying," said Louise Cooper, Markets Analyst at BGC Partners. "Most economists are expecting a rebound to the US economy in the second half of the year, this number will cause them to return to their models," Cooper added.
Integrated oils suffered as crude prices dropped almost 3 percent after the US jobs reports, and banks fell back as worries over the US economy added to concerns about the European debt situation. Away from the big three sectors, satellite broadcaster BSkyB was the biggest individual FTSE 100 faller, down 7.6 percent after the British government said it would take the closure of the Murdoch tabloid News of the World, at the heart of a phone hacking scandal, into consideration when deciding on the mogul's planned $14 billion bid to buy BSkyB.
Tobaccos were the best sector performers, wanted for their defensive qualities as investors' risk appetite faded, with British American Tobacco and Imperial Tobacco ahead 0.8 percent and 0.7 percent respectively. Imperial Tobacco also got a boost from an end to the cigarette price war in Spain, according to traders, with Philip Morris having reversed its recent price cut.
Drug stocks rallied after recent falls, with GlaxoSmithKline adding 0.7 percent and Shire up 0.8 percent. Associated British Foods was the top blue chip riser, ahead 1.7 percent having dropped sharply earlier in the week in sympathy with a warning from Dutch peer CSM.
The British firm is scheduled to release a third-quarter trading update next Thursday, July 14. And retailer Marks & Spencer added 0.6 percent following recent weakness and ahead of a trading update due next week, with peer Next adding 0.5 percent. There were also fresh concerns over the outlook for the UK economy on Friday, the day after the Bank of England kept interest rates at record lows.
British factory gate inflation rose unexpectedly strongly in June to its highest since October 2008, heralding further upward pressure for consumer prices, while poor construction data added to fears of second-quarter stagnation for the whole economy. "It's just not looking good for the British economy at the moment, and with the US economy on a knife-edge too, we are going to be very dependent on the upcoming Q2 earnings season to help us out of the hole that is the current trading range," said Mic Mills, head of electronic trading at ETX Capital.