By Roger Baird and Graeme Evans, Press Association

By Roger Baird and Graeme Evans, Press Association

The London market fell sharply today as a series of political and economic events triggered a correction for world financial markets.

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A debt default for Argentina, the deepening woes of Portugal's Espirito Santo bank and the West's sanctions against Russia were among factors that drove stocks down by as much as 100 points early in the session.

This came after Thursday's worst performance on Wall Street since February, a run of mixed earnings figures from US firms and the prospect that the Federal Reserve will soon be ending its stimulus programme.

The pound was down against the dollar, at 1.69, and against the euro, at 1.25, after a survey showed growth in Britain's manufacturing sector during July was its weakest for a year.

Mining stocks were hit during the sell-off in London, with Rio Tinto down 1 per cent or 37.5p to 3354.5p and commodities giant Glencore 3.9p lower at 356.2p.

Water company United Utilities was the biggest faller in the top flight, off 34p to 856p, after broker Credit Suisse cut its rating on the stock to underperform. Elsewhere in the sector, Severn Trent dropped 58p to 1877p.

The same City firm also cut outsourcing group Capita to neutral from outperform, causing shares to fall almost 2 per cent or 22p to 1180p.

A shortened risers board was led by medical devices firm Smith & Nephew as it stuck by its outlook for the year, even though its advanced wound management business is set to grow by less than the market.

Operating profits were 29 per cent lower at £134 million in the first half of the year but shares still rose almost 4 per cent or 39p to 1065p.

International Airlines Group (IAG) also rose after its half-year figures soothed investor nerves in the wake of profit warnings from Lufthansa and Air France-KLM.

Chief executive Willie Walsh said the British Airways and Iberia owner was making solid progress as half-year operating profits rose to 230 million euros (£182 million) from a 33 million euro (£26 million) loss a year earlier.

Shares climbed 7.4p to 338.2p.

In the FTSE 250 Index, Direct Line Insurance climbed 5 per cent or 14.4p to 299.4p after it announced a special interim dividend of 10p a share alongside operating profits of £249.1 million, down 13.1 per cent.

Direct Line said that pressure on prices eased in the second quarter, although it was too early to say if the market had reached the bottom of the cycle.

The biggest risers on the FTSE 100 were Smith & Nephew up 39p at 1065p, BG Group up 36.5p at 1208.5p, Royal Mail up 10.7p 428.1p and IAG up 7.4p at 338.2p.

The biggest fallers on the FTSE 100 were United Utilities down 34p at 856p, Severn Trent down 58p at 1877p, Schroders down 61p at 2329p and Johnson Matthey down 75p at 2884p.