The FTSE 100 fell on Friday, with investors fearing a lack of unity among European Union politicians on how to deal with the debt crisis was worsening the situation, while corporates such as Capita felt the impact of the ongoing debt problems.

In light and volatile trade, London's blue chips <.FTSE> shed 60.20 points, or 1.1 percent, to 5,362.94 -- its fifth daily loss in a row to end the week down 3.3 percent.

In Berlin, Prime Minister David Cameron and German Chancellor Angela Merkel could not mask differences over the handling of the euro zone's debt crisis. Cameron called for decisive action to stabilise the euro zone, while Merkel said she favoured a step-by-step approach.

Lothar Mentel, chief investment officer at Octopus Investments which manages $4 billion (2.5 billion pounds), said dithering among politicians has left a 20-30 percent chance of bankruptcy for several peripheral EU nations and the potential collapse of the euro zone.

Whilst the political classes are invariably happy to use investment markets as scapegoats, they simply have not done enough to remove this tail risk and put the threat of widespread collapse off the table, he said.

Mentel said Octopus was sticking with its neutral asset allocation, with a tilt towards the more defensive actively managed investment strategies.

Banks fell 0.8 percent as concerns over exposure to risky government debt weighed on the sector.

Those worries have seen unsecured lending between banks evaporate and the cost of secured loans rise as trust has dwindled between counterparties.

Miners and integrated oils retreated too as investors sold out of riskier assets.


With Europe's debt crisis showing no sign of abating, British companies said they were feeling the effects of government austerity measures.

Capita was the top faller on the FTSE 100, down 4.1 percent after the outsourcing company said it was feeling the pinch as clients curbed spending. It said it would only deliver reasonable 2011 revenue growth, prompting Oriel Securities to repeat its reduce rating.

Capita offers no surprise by confirming our view that downward pressure on revenue is more severe than they guided at the interims, Oriel said in a note.

Military equipment maker and FTSE mid-cap index <.FTMC> constituent Chemring shed 13 percent after warning on full-year revenue. FTSE small-cap index <.FTSC> member Huntsworth fell a quarter in value after a profit warning, with both blaming global economic uncertainty.

SABMiller fell 2.4 percent as it will raise its cash takeover offer for Foster's to A$5.40 per share to make up for the loss of a 30 cents capital return after a tax ruling from Australian authorities.

Wall Street was marginally higher as the London market closed, helping keep the FTSE 100 off intraday lows. Growth has picked up modestly in the second half of 2011, but not enough to bring unemployment down, New York Fed President William Dudley said in remarks at the University of Albany.

On the upside, cruise operator Carnival added 1.7 percent as Jefferies initiated coverage on the firm with a buy rating, saying a combination of lower capital expenditure and cost control would ensure a smooth sailing for cruise lines in a low-growth economy.

(Editing by Dan Lalor.)