Markets close sharply lower on China downturn

London Stock ExchangeMon: European markets closed sharply lower following a weak start to the year in China where factory activity contracted and its central bank guided the yuan lower.

Oil prices reversed gains earlier in the session amid concerns about the row between Saudi Arabia and Iran. Riyadh cut ties with Iran after protesters stormed the Saudi embassy in Tehran..

The FTSE 100 closed down 2.39% or 136.38 points at  6,123 following a slump in Asian stocks on a weakening yuan and disappointing reports on the manufacturing sector.

China’s manufacturing purchasing managers’ index fell to 48.2 in December from 48.6 the previous month, below expectations of 48.9 and the 50 level that separates contraction from expansion.

UK manufacturing fell to 51.9 in December from 52.5 in November, missing analysts’ estimates of 52.8.

Insurance companies RSA Insurance, Direct Line and Aviva slumped after UBS estimated net losses of £150m to £308m from the damage of storms Desmond, Eva and Frank.

Diageo was lower after completing the sale of its wine interests, including US-based Chateau and Estate Wines and the UK-based Percy Fox arm, to Treasury Wine Estates.

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