London stocks dive on fiscal policy nerves

FTSE 100 down 1.8%, FTSE 250 slides 3.1%

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Next's slides on outlook cut

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Synthomer plunges after lowering annual profit outlook

Sept 29 (Reuters) - London stocks sank on broad-based losses on Thursday, with the mid-caps index plunging 3.1%, as worries about fallout from the government's new economic plan continued to roil markets.

Relief from emergency bond-buying measures by the Bank of England on Wednesday proved brief as UK bond yields resumed their rise, as did the sterling.

Consumer discretionary stocks led losses in the mid-caps index which tumbled to May 2020 lows. The index is on course for its worst week since March, down 6.6%.

The blue-chips index lost 1.8% as banks and consumer staples weighed. It is set for its third straight weekly fall.

Britain's Prime Minister Liz Truss defended her tax-cutting budget on Thursday despite criticisms from rating agency Moody's, the International Monetary Fund and turmoil in markets.

Stock markets have been hit globally this year amid worries that aggressive monetary policy tightening to curb inflation could tip economies into recession. The FTSE 100 has lost 7% so far in 2022.

"The zero or very low interest rate environment for the past 15 years has hidden or concealed some of the fragilities of the financial system, and in fact it has encouraged a lot of risk taking. And now all of those vulnerabilities are coming to the fore," Andrea Cicione, head of strategy at TS Lombard, said.

"This is just one example of leverage in the financial system in places where we weren't aware there was ... Leverage is always there and it's very difficult to see until things start to go wrong."

Data on Thursday showed Britain's consumer confidence sank to a record low this month, amid accelerating cost of living.

Shares of Next slid 12.2% after it cut profit and sales forecasts, while British American Tobacco fell 3.6% in ex-dividend trading.

Synthomer tanked 35% after it lowered annual profit outlook. (Reporting by Johann M Cherian and Susan Mathew in Bengaluru; editing by Uttaresh.V, Rashmi Aich and Andrew Heavens)