FTSE 100 faces worst day in 2 months, engulfed by European political fears

U.K. stocks sold off Tuesday, dragged down alongside European equities, as investors fretted about political risk in Italy and Spain.

What markets are doing

The FTSE 100 index UKX, -1.36% �fell 1.5% to 7,616.75, as fewer than 10 components moved higher. The London blue-chip benchmark is facing its sharpest decline since mid-March, according to FactSet data.

Trading was closed Monday for the Bank Holiday. The index on Friday rose 0.2%, trimming last week��s loss to 0.6%.

The pound GBPUSD, -0.4357% bought $1.3225, down from $1.3312 on Monday in New York.

What��s driving the market

Investors in U.K. and continental European assets ditched equities as they watched political wrangling among major political parties in Italy and Spain. The upheaval was reviving concerns that a significant shift in the political landscapes of both countries could fracture the European Union and the euro. Benchmarks in Italy I945, -2.60% � and in Spain IBEX, -2.37% �were each down roughly 3% on Tuesday.

In Italy, worries grew that the country will be forced to hold a new general election. The country��s president, Sergio Mattarella, on Monday blocked two antiestablishment parties from taking power by rejecting their euroskeptic candidate for economy minister. The populist 5 Star Movement and League parties are now calling for new elections.

Read: Here��s why markets are worried about Italian politics �� again

Also check out: 4 ways the ECB is preventing an Italian rerun of the euro crisis �� for now

In Spain, Prime Minister Mariano Rajoy will face a no-confidence vote in parliament on Friday, which could lead to the ouster of his minority center-right government and its replacement by the Socialist Party. The center-left opposition party called for the vote after a corruption case ended in convictions for senior members of Rajoy��s Popular Party.

What strategists are saying

��Italy��s unsettled domestic politics was spilling into the London market after three days of rest,�� said Fiona Cincotta, senior market analyst at City Index, in a note.

��The euro was looking frail, trading at a 6-month and heading lower against major currencies as Italy��s domestic strife cast a dark cloud over Italy��s relations with the European Union. The pound is not in a much better shape this morning, dropping to multimonth lows against the dollar, yen and the Swiss franc,�� she added.

Stock movers

Royal Bank of Scotland Group PLC RBS, -3.45% �lost 3.6% following a Sky News report that the U.K. government is preparing to sell a multibillion-pound stake in the lender, possibly as soon as this week.

Off the main benchmark, Dixons Carphone PLC DC., -20.33% �tumbled 22% after the British electronics and phones retailer issued a pretax profit warning for fiscal 2019.

Copper miner Fresnillo PLC FRES, +2.50% �rose 3.5%, topping the FTSE 100��s few advancers.

Carla Mozee

Carla Moz茅e is a reporter for MarketWatch, based in London. Follow her on Twitter @MWMozee.

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Comment Related Topics United Kingdom London Stock Exchange London Markets Bank of England Europe European Markets Quote References UKX -105.32 -1.36% GBPUSD -0.0058 -0.4357% I945 -570.57 -2.60% IBEX -231.90 -2.37% RBS -10.00 -3.45% DC. -47.45 -20.33% FRES +32.50 +2.50% Show all references MarketWatch Partner Center