Market lower on renewed fears about US economy

Markets are lower for a third day as US rate-setters said European debt worries could hobble US economic growth.

The FTSE 100 was down 47.48 points, or 0.91%, at 5131.

In Germany, the Dax was 0.78% lower at 6155 and France's CAC 40 was down 1.09% to 3602.  

Overnight, the US’s main index, the DJIA, posted only modest gains after the Federal Reserve said European government debt could stymie US growth.

This US Federal Open Market Committee (FOMC), which sets US interest rates, said: ‘financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.'

That came just hours after data showed new home sales hit a record low in May - following the withdrawal of government stimulus.

The index closed the day up just 4.92 points higher at 10,298.44. The broader S&P 500 finished the day down 3.27 points at 1,092.04.

One trader said the news adds to concern about how Western economies will cope once government stimulus is withdrawn. 

He said: 'There have been lengthy discussions recently as to whether Western markets may be addicted to stimulus (fiscal and monetary) and how the withdrawal of this may cause problems for many years to come. Given the very weak US new home sales yesterday the evidence is stacking up that US housing remains on shaky ground now we're in the period post tax credits.'

Already there are fears that government spending cuts in the UK and elsewhere could push European economies back into recession.

The concerns about what this means for global demand dragged miners lower, with Kazakhmys down 3.85% at £11.24 and Fresnillo down 2.55% at £10.32.

Rio Tinto shares were falling less, down 1.71%, at £33.17 after newly appointed Australian Prime Minister Julia Gillard said her government wanted to discuss plans for a new mining supertax with miners.