FTSE nosedives on gloomy Fed outlook

Heavy selling dominated the early trades on London's FTSE on Thursday after the Federal Reserve painted a gloomy picture of the global economy.

The FTSE 100 lost more than 170 points, or 3.25%, to 5,116, with miners taking the brunt of the sell-off.

Elsewhere, both the German Dax and the French Cac are off almost 4%.

It follows an announcement by the Federal Reserve last night. After a two-day meeting, it announced it will buy $400bn worth of long-term government bonds and sell short-term securities.

It hopes this will drive down interest rates on long-term government debt and lower rates on mortgages and other loans.

But the fact it will not pump 'new' money into the economy - as some had expected - weighed on US markets overnight, which has fed into European indicies today.

Its announcement was accompanied by a statement which pointed out the economy has "significant downside risks" and that a number of problems won't be easily solved, including high unemployment and a depressed housing market.

This followed a warning yesterday by the International Monetary Fund (IMF) on the risk exposure of European banks.

Speculation has increased that France may step in to recapitalise its banks, with the Financial Times reporting that BNP Paribas executives will go the Middle East to raise fresh capital and restore investor confidence.