The FTSE 100 fell by much more than expected this morning despite comments from the US president, Barack Obama, telling the world that the worst is over.
"When you look at the economy right now, I think it's safe to say we have stepped back from the brink, that there is some calm that didn't exist before," Obama said at a fundraiser for the Democratic national committee in Beverly Hills.
However, the president's sentiments were not enough to stop Britain's leading index falling on news that rising yields on US government debt could choke off recovery. Early on, the FTSE 100 index was down 47.24 points at 4,368.99 and the FTSE 250 was down 1%.
Mark Priest, senior equities trader at ETX Capital, said: "We have rallied in the last few months on a sense of optimism. Reality is setting in. The level of debt throughout the world, especially in the US and the UK, are finally beginning to worry people.
"We saw the sell-off in the US yesterday. That was mainly due to concern about the level of US debt and rising bond yields. Inevitably, we will have the same over here because of the high level of debt. We could, over the next few weeks, see a bit of correction."
European shares were also lower on the back of the grim news. The FTSEurofirst 300 index of top European shares was down 1.4% at 858.65 points.
Banks were among the early fallers. BNP Paribas, Credit Suisse, Deutsche Bank, Societe Generale and UBS fell between 1.2 and 2.2%.
Obama's relatively upbeat sentiments followed on from good US consumer confidence figures released earlier this week. The Conference Board, a New York-based forecasting organisation, leapt from 40.8 to 54.9 during May as more people start to believe the worst of the downturn is over.
However, Obama said there was still much work to be done to get the US's fiscal house in order despite tentative signs of green shoots. "We can't rest on our laurels because we've got a lot of work to do," he said.
