EUROPE MARKETS: U.K. Stocks Drop Amid European Turmoil

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- Oil producers and miners dragged U.K. stocks into negative territory Thursday amid turmoil on the broader European bond and stock markets, as Moody's slashed Spain's credit rating and investors awaited a key Italian bond auction.

The FTSE 100 index slipped 0.8% to 5,440.92.

Miners were among biggest decliners in the index. Fresnillo PLC lost 2.5%, Xstrata PLC fell 3.6% and BHP Billiton PLC (BHP) slid 1.9%.

Oil firms were also adding pressure in London, with Royal Dutch Shell PLC (RDSA) (RDSB) off 0.8%, BG Group PLC down 1.2% and Tullow Oil PLC 2.4% lower.

Drops in the U.K. index tracked negative sentiment across Europe following another day of surging bond yields for Spain and Italy. Late Wednesday, Moody's Investors Service cut Spain's credit rating to Baa3 from A3 and placed it on review for a further downgrade.

In Italy, investors were waiting for bond-auction results later in the day to signal the current state of market confidence in the country's economy.

Back in the U.K., almost every stock headed south, with the banking sector also among declining groups. Lloyds Banking Group PLC (LYG) was off 0.7% and heavyweight HSBC Holdings PLC (HBC) inched 0.5% lower.