UK Shares Slide After China Trading Turmoil

The FTSE 100 Index has dipped below the 6,000 mark following more stock market turmoil in China that has resulted in a controversial share price stability mechanism being scrapped.

European shares fell sharply after trading overnight in China was halted for the second time this week as prices plunged again amid continued investor panic.

The FTSE 100 closed 119 points or 2% lower at 5,954 with only three companies making gains.

UK shares have had a miserable start to 2016 this week, driven by fears over China - the world's second biggest economy. The slide continues a plunge in blue-chip stock values over recent months.

Global share falls have been compounded by the slide in the price of oil, with Brent crude collapsing to fresh lows close to $32 a barrel - the lowest level since April (LSE: 0N69.L - news) 2004.

The FTSE 100's current weak performance is a far cry from last April when London's leading share index reached record highs above 7,100.

It (Other OTC: ITGL - news) came as Chancellor George Osborne warned of a "dangerous cocktail" of threats to the UK economy, during a speech in Cardiff.

Chinese markets have lurched up and down as regulators gradually withdraw measures that were imposed after the main stock index plummeted in June.

The latest plunge came after China accelerated the depreciation of its currency, the yuan.

A similar stock market drop on Monday caused a sell-off on markets around the world.

Trading was suspended on Thursday after a market index, the CSI 300, dropped 7% half an hour after markets opened, triggering a "circuit breaker" that came into effect on 1 January.

:: FTSE Faltering After Latest China Turmoil

For the "circuit breaker" - a 15-minute pause in trading - to have been activated, the CSI 300 had to fall 5% within 30 minutes.

However, Thursday's decline was so fast that before that could take effect, the index hit the 7% limit that ended trading for the day.

The China Securities Regulatory Commission (CSRC) later said of the "circuit breaker": "After weighing advantages and disadvantages, currently the negative effect is bigger than the positive one. Therefore, in order to maintain market stability, CSRC has decided to suspend the circuit breaker mechanism".

The benchmark Shanghai Composite Index fell 7.3% to 3,115.89, while the Shenzhen Composite Index for China's smaller second exchange slumped 8.3% to 1,955.88.

The yuan's depreciation should help China's manufacturers because it makes their goods cheaper for foreign buyers. But it hurts foreign producers trying to sell to the Chinese market because it makes their goods dearer - unless they cut profit margins.

:: Stock Markets Fall As China Halts Trading

Investors fear that the scale of the yuan's depreciation could mean that the slowdown in China's economic growth is even worse than previously thought.

UK-listed mining stocks such as Anglo American (LSE: AAL.L - news) and Glencore (Xetra: A1JAGV - news) were badly hit by the latest developments as China is the leading consumer of global metals. Companies that export to China, such as fashion brand Burberry and car maker BMW (Swiss: BMW.SW - news) , also fell.

The FTSE 100 Index is not a barometer of the health of the UK economy as many of its constituent companies derive most of their business overseas. But its movements will affect British investors and funds held by UK employers' pension schemes (Other OTC: UBGXF - news) .