February 28, 2020 / 9:28 AM / a month ago

UPDATE 2-London stocks hit by fears of coronavirus economic impact

* FTSE 100 tumbles 3.4%, FTSE 250 sheds 2.1%

* Both indexes enter correction territory

* Miners, oil majors, airlines lead declines

* Rolls Royce only gainer on main index (Updates to closing prices)

By Sagarika Jaisinghani and Devik Jain

Feb 28 (Reuters) - London’s FTSE 100 dropped to its lowest level since June 2016 on Friday as investor fears that the coronavirus outbreak could spark a global recession intensified.

The blue-chip FTSE 100 fell 3.4%, while the mid-cap index shed 2.1%. Both marked their worst week since the 2008 financial crisis.

British Airways-owner IAG fell 9% to a four-month low after it said it would cut flights to Italy, Singapore and South Korea, reflecting a drop in passenger numbers.

The fall pushed the stock to the bottom of the FTSE 100 and led the wider travel and leisure index down 3.3% to its lowest level since 2016.

World stocks have been hammered across the board this week, with the MSCI world index losing about $6 trillion in value, as widespread disruptions to the supply chain prompted analysts to cut their forecasts for economic growth and corporate earnings in 2020.

On Friday, Citigroup predicted the corporate sector would see no earnings growth at all this year, while ratings agency Moody’s said a pandemic would trigger a global recession in the first half of the year.

“It really does look like we have further tough times ahead of us, growth wise,” said Chris Beauchamp, chief market analyst at IG.

“We can expect further weakness across Asia and this will rebound to UK markets.”

Bank of England governor Mark Carney told Sky News on Thursday that it was likely the economy would take a hit. Traders are counting on the U.S. Federal Reserve to cut interest rates next month to prop up growth.

London’s main index has lost about 13% from a peak hit on Feb. 12, as the coronavirus continues to spread outside China, the epicentre of the outbreak.

Countries on three continents have now reported new cases, while in Europe confirmed infections in Italy reached 650 and Germany warned of an impending epidemic.

British aerospace engineer Rolls-Royce was among a handful of stocks in the black on the main index, rising 4% as its chief executive said the company was looking forward to 2020 with some degree of conviction and confidence.

This helped offset disappointing 2019 results.

Biotechnology firm Novacyt soared 30% after signing its first major distribution agreement to supply its coronavirus test to two Asian territories outside mainland China. (Reporting by Sagarika Jaisinghani, Devik Jain and Muvija M in Bengaluru; Editing by Sriraj Kalluvila and Alexander Smith)

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