A trio of profit warnings from mid-sized companies illustrated the deepening gloom in Europe. Gem Diamonds, the largest London listed diamond mining company, dived 37 per cent after it warned of a sudden fall in selling prices for diamonds since October.

It said this slump in the last three months of the year was so bad that it could create a loss for the full year.

Prices from its main Letseng mine of large diamonds plunged 24 per cent in tenders held in October and November against prices achieved in the previous three months.

However, rival and smaller diamond miner Kopane Diamonds rose 41 per cent after it said its main project in Lesotho,South Africa, had seen improved quality of diamonds, raising the size by more than 75 per cent.

Bodycote, the metals coating specialist, fell 20 per cent after it gave warning that it was halving the cash from £260 million to £130 million that it would pay to shareholders as the recession hits car manufacturing customers, which has led to a sudden fall in sales and a profit warning.

Avis Europe, the care hire group, lost 23 per cent after saying that falling values of secondhand vehicles were affecting the value of its fleet.

This drove down Inchcape, the car dealer, another 6 per cent to 57p.

The FTSE 100 lost 50.73 to 4180 by 10.52am.

Banks Lloyds TSB and HBOS were among the worst performers, losing 9 and 7 per cent respectively as their merger is due to be voted on this week. HBOS's large exposure to mortgages is likely to be a problem for the merged group in the years to come.

Wolseley lost 7 per cent ahead of interims that are expected to be grim tomorrow.

Tesco lost 4.5 per cent to 315.75p after JPMorgan downgraded the stock to neutral and cut its price target from 340p to 290p, saying that Aldi was beating Tesco on prices across all its products. Tesco had cut prices only on a small proportion of its range, it said.

Premier Foods gained 17 per cent on weekend reports that United Biscuits was looking at buying its Mr Kipling brand.

Taylor Wimpey gained one per cent to 10.25p on talk that private equity firms were circling to take a stake to rescue the company from a covenant breach next year.

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