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London Blast send shares reeling

The FTSE 100 Index plunged more than 200 points early today as traders reacted to the carnage caused in the heart of London.

At one point, the blue-chip index stood 207.5 points lower but later recovered some of its poise to limit the losses to below 100 points.

The London Stock Exchange remained open but took action - such as asking traders to switch off certain electronic trading systems - to prevent a more volatile response.

At the same time, investment banks evacuated buildings near to areas where the bombs went off.

The Bank of England continued its monthly rate-setting meeting as planned when it kept the cost of borrowing at 4.75%.

Richard Hunter, of broker Hargreaves Lansdown whose offices are located near Bank station, said: "It's eerily calm apart from sirens and helicopters every two minutes hovering overhead. There's barely any traffic on the roads."

Investment bank UBS evacuated its office near Liverpool Street but continued trading from its other four sites in the capital, while staff at Dresdner Kleinwort Wasserstein and Goldman Sachs were advised to stay inside until further notice.

The Footsie recovered as the police and emergency services gained control of the situation, standing 71.3 points down at 5158.3 by the close. Reassurance also came from New York where the Dow Jones Industrial Average opened only marginally lower.

In London, shares in hotel operators and airlines including British Airways were under the most pressure as investors worried about the impact on people's willingness to travel.

Investment was switched into traditional safe havens such as government bonds and on the currency markets the pound was down almost a cent at $1.74 against the US dollar.

Steven Saywell, senior currencies strategist at Citigroup, said: "As far as markets are concerned it is the uncertainty that will trouble people.

"Obviously, it's a nasty incident and markets would look to know more about who was behind it, the wider situation and can we expect more of this.

"We've seen buying of currencies such as the Swiss franc and because the attacks happened in London the pound has suffered on the back of that."

Tom Hougaard, of spreadbetting firm City Index, said investors were delaying long-term decisions until the "dust has settled" and calm has returned to the market.

Mr Hunter said: "The one thing that the market hates is uncertainty and that's what took us down 200 points early on."

Hotels group Hilton was a heavy faller - off 3% or 9.75p at 288.25p - as traders feared a downturn in the industry as people restrict travel to essential trips.

British Airways lost 4% or 11.5p at 260.75p, easyJet dropped 10p to 254.25p and BAA - the operator of airports including Heathrow and Gatwick - weakened 20p to 599p.

The prospect of a surge in insurance claims left blue-chip insurers such as Prudential deeply in the red. The Pru was off 9.75p at 502.25p while Norwich Union owner Aviva dropped 14p to 611p.

Among the top 100 firms in the UK, only two were in positive territory.

Outside the top flight, firms in the transport sector came under pressure including bus operators National Express, down 3% or 30.5p at 880p, Stagecoach off 1.25p at 115.5p and Arriva down 12p at 534p.

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