Shares in Johnston Press dived by 13¼p to a nine-year low of 169½p on fears that the newspaper group will have to renegotiate its debt or cut its dividend if advertising demand slips any further.

Johnston, owner of regional newspapers including the Yorkshire Post and The Scotsman, gave warning of slowing advertising revenue on Wednesday. It had debt at the year end of £684 million and its underlying earnings this year are forecast to be about £185 million. Its banks can call in their loans if debt hits four times earnings.

Analysts at Kaupthing and Deutsche Bank said that if Johnston’s advertising revenue fell by just another 5 or 6 per cent below their forecasts, the company would breach its bank covenants. Deutsche said that Johnston would probably cut its dividend, its costs or its capital expenditure to avoid the breach.

There is talk that estate agents are considering cutting their local newspaper advertising in favour of more internet advertising with companies such as Rightmove, up 5p at 505p.

Johnston’s finance director, Stuart Paterson, said: “I can understand the concerns around debt-market conditions, but given the cash generation in our business and the current level of headroom, a breach of covenants is not something that we can currently foresee.”

The FTSE 100 closed down 87.1 at 5,766.4 driven by falling banks and insurers as Thornburg Mortgage and a Carlyle Group bond fund in the United States revealed problems meeting margin calls over mortgage-backed investments.

F&C Asset Management spread more misery over the fund management sector by warning of a “deteriorating economic environment and volatile markets”. Friends Provident, which is trying to sell its majority stake in F&C, was dragged down 6p at 121½p, also hurt by rumours that JC Flowers may make a low-ball bid.

However,Schroders, the fund manager that this week gave warning of grim retail demand, was hit harder, falling 49p to 957p, and New Star Asset Management slid 8¼p to 87½p as Deutsche Bank turned negative on the sector, cutting Schroders to a “sell” with an 855p target and New Star, which has high debt and full-year results on March 20, from 440p to 80p. High gearing is a problem, Deutsche said, when assets under management and performance fees are falling. Henderson fell by 3p to 95¾p. F&C, already heavily shorted, edged up ¾p to 175½p.

British Energy, the nuclear generator, jumped 24p to 576p on a rising oil price and a report that the Government wants to accelerate the building of nuclear stations. British Airways lost 20p at 245p after giving warning that its fuel costs would soar.

Scottish & Newcastle fell 4p to 782p amid vague whispers that Carlsberg had hit a Russian regulatory hurdle in its takeover of S&N’s 50 per cent stake in Baltic Beverages Holdings.

Mitchells & Butlers lost 12¾p to 440p although the Martini family of Italy edged up its stake via contracts for difference to 1.85 per cent.

— New York: US shares tumbled on concern over credit markets and a rise in home foreclosures. The Dow Jones industrial average closed down by 214.60 points at 12,040.40.

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