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LONDON (Alliance News) - UK stock indices closed lower Tuesday as fears grew about the health of the struggling eurozone economy, while airlines, hotel and holiday operators were amongst the worst-performing shares after the first case of human-to-human Ebola transmission outside of Africa was confirmed in Spain.

The FTSE 100 closed down 1.0% at 6,495.58, the FTSE 250 closed down 1.2% at 15,099.22, and the AIM All-Share closed down 0.6% at 736.17.

The sell-off in equity markets was wide-spread, with the French CAC 40 ending down 1.8% and the German DAX down 1.3%, while the major US indices were also down between 0.7% and 0.8% when the European equity markets closed.

The International Monetary Fund Tuesday warned that it now sees a 40% chance of the eurozone falling back into recession. The warning came as the global lender cut its growth projections for the world economy to 3.3% this year and 3.8% next year, down from the 3.4% and 4.0% it predicted previously.

In accord with recent warnings from European Central Bank president Mario Draghi, the IMF's growth projections for France and Italy were downgraded, while Spain received an Upgrade. Draghi has recently heaped praise on Spain for undertaking painful structural reforms, while he has chastised France and Italy for postponing austerity measures in the hope that the ECB will bail out struggling economies with quantitative easing.

Germany is seen as the main opponent to the ECB embarking on a bond buying programme. The country also received a growth forecast downgrade from the IMF, to 1.4% this year from 1.9% previously. The new projections came after German industrial production data earlier in the session recorded the fastest monthly fall since the start of the financial crisis. Industrial production fell by 4.0% in August, much faster than the 1.5% that had been expected.

UK industrial production remained flat in August, in line with expectations. The IMF Growth projections for the UK were left unchanged at 3.2% for this year and 2.7% for 2015.

Airline and leisure industry stocks came under pressure across Europe and the US amid fears about the spread of the Ebola virus outside Africa and the possible impact on travelling.

A Madrid nurse was confirmed as an Ebola patient after two blood tests came up positive, Spanish media reported. She had treated Manuel Garcia Viejo, who contracted the disease as a medical missionary in Sierra Leone and was airlifted back to Madrid and died September 25.

The news comes as international fears grow about the spread of the disease which had been centred in Guinea, Liberia and Sierra Leone but has now appeared in the US and Spain.

In Washington, President Barack Obama said the US would bolster screening of passengers at airports in Africa and the US to halt Ebola's spread after a traveller from Liberia came down with the haemmorrhagic disease in Texas. In Uganda, the government mobilized response teams and issued a public health alert after a man died of the Ebola-like Marburg virus, a senior health official said. Eighty people who had been in contact with the victim have been isolated, officials said.

The FTSE 350 travel & leisure sector index lost 3.0%, with all of the top FTSE 100 fallers coming from the sector.

British Airways parent International Consolidated Airlines Group was the worst performing FTSE 100 stock, ending down 6.9%. Cruise ship operator Carnival dropped 6.7%, low-cost airline easyJet lost 5.2%, package holiday operator TUI Travel lost 3.9%, and hotel operator Intercontinental Hotels Group lost 2.3%. FTSE 250-listed Thomas Cook Group ended down 2.8%.

"The sell-off is certainly being attributed to profit taking as a result of that story but to be honest, I think it's a little overdone and don't see much more downside unless we see many more cases," said Alpari Market Analyst Craig Erlam.

Miner Rio Tinto had a volatile day, rising 6.2% in morning trade following the news that it received a takeover approach, which it rejected, from Glencore in August. The Anglo-Australian miner lost its bid premium in the afternoon, however, dropping about 8% in seconds, when Glencore said it does not intend to make another approach for now. The metals giant reserved the right to make an approach in the future, although it must now wait six months before doing so. Rio Tinto ended the day up 0.8%, and Glencore down 2.5%. A merger between the two names would create the biggest mining group in the world, overtaking BHP Billiton.

Tesco was the best FTSE 100 performer, ending up 3.3%, on the back of reports that private equity group TPG has emerged among a group of potential suitors considering a bid for the marketing group behind Tesco's Clubcard loyalty scheme. The buyout firm is understood to have made an approach to Tesco over acquiring Dunhumby, a wholly-owned subsidiary of the supermarket group, in a deal that would be worth over GBP2 billion, Sky News reported Tuesday. Tesco is believed to be considering its ownership of Dunhumby amid a wider review of its business being overseen by new Chief Executive Dave Lewis.

FTSE 250-listed Spirent Communications lost 22% after the telecommunications equipment company warned that its revenue started to be hit as trading conditions softened in the latter part of the third quarter, and it expects revenue and operating profit in the fourth quarter to be lower than it had hoped. The company warned that demand levels dipped sharply as a result of merger activity and delays in capital expenditure, as future new technology deployments were being assessed in areas in which Spirent has increased its investments. It said the impact was being most felt in its networks and applications businesses.

Still to come Tuesday, speeches are scheduled from Federal Reserve members Narayana and Dudley at 1820 BST and 1800 BST, respectively, as well as from former Fed Chair Bernanke at 2220 BST, all ahead of the release of the September Fed meeting minutes on Wednesday. The September meeting was surrounded by speculation that the US policy makers might remove the words "considerable time" from its forward guidance over how long rates will stay at current levels after its asset buying programme ends. Investors will be keen to find out Wednesday how close that removal was.

In the UK corporate calendar Wednesday, trading statements are due from FirstGroup and Marston's PLC.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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