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UK STOCKS dropped yesterday, extending last week’s sell-off for the benchmark FTSE 100 Index, amid concern Germany is preparing for Greece to default.

The FTSE 100 lost 1.6 per cent in London as all but eight companies retreated. The benchmark fell last week amid concern policy makers will not be able to stop Europe’s sovereign debt crisis from spreading.

The FTSE All-Share Index lost 1.6 per cent.

“What dictated direction was the only too familiar concern about European debt,” said London-based David Jones, chief market strategist at IG Index.

“The belief that Germany is getting ready for Greece to default has gathered steam over the weekend and found momentum today,” he said.

Officials in Chancellor Angela Merkel’s government in Germany are debating how to shore up German banks should Greece fail to meet the budget-cutting terms of its aid package, three coalition officials said on September 9th.

Greek Prime Minister George Papandreou, vowing to avoid a default and keep the country in the euro, approved new measures to help plug a budget gap as resistance builds at home and in Europe to extending more aid to the European Union’s most indebted nation.

Antofagasta fell 3.1 per cent to 1,249p, Vedanta Resources lost 2.35 per cent to 1,330p and Rio Tinto, the world’s second-biggest mining company, slipped 1.52 per cent to 3,510p.

Commodities fell to the lowest level in more than two weeks amid concern slowing global economic growth may curb raw-materials demand.

Fresnillo, the world’s largest primary silver producer, sank 7.49 per cent to 1,989p as gold and silver fell for a second day.

Randgold Resources declined 2.26 per cent to 6,910p.

RBS dropped to 20.77p as credit-default swaps insuring the senior and subordinated bonds of Barclays and RBS rose to records, according to CMA.

Barclays slid 1.63 per cent to 141.65p and Lloyds Banking lost 1.55 per cent to 30.56p.

Banks also fell as Britain’s government said it will force lenders to insulate their consumer and investment banking units by 2019.

Aviva dropped 4.46 per cent to 289.2p. Prudential slid 1.47 per cent to 568p and Old Mutual slipped 1.16 per cent to 110.4p. – (Bloomberg)