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London - Moves by the Bank of England boosted London stocks and sent the pound to a new 31-year low on Tuesday, but but elsewhere stocks fell, with traders keeping a nervous eye on a brewing Italian banking crisis.
The British central bank relaxed commercial banks' capital requirements to boost lending to businesses and households, providing a shot in the arm to London stocks, with the FTSE 100 adding 0.4%.
However London's wider FTSE 250 index, which contains many more British companies, fell 2.1% and has dropped nearly 10% since the start of the year.
The BoE warned that financial stability risks "have begun to crystallise" after Brexit, with a third group suspended trading in its commercial property fund, blaming a surge in redemption requests amid uncertainty on the markets following Britain's vote to leave the European Union.
The pound was back under pressure, striking a new 31-year low of $1.3035.
Low bond yield
"A downward trend in the pound seems to have been triggered thanks to the measures taken by the Bank of England and the possibility of the pound returning to parity with the euro," said Sylvain Loganadin at online trading firm FXCM.
The pound sank to as low as 1.1699 euros, having been above 1.30 before the referendum vote.
Meanwhile Britain's first government bond launch since the country voted to leave the European Union returned a record-low yield of 0.382%. The yield was the lowest recorded for a five-year government bond, beating the 0.787% return for an auction in 2012, according to the UK's debt management office.
IHS Global Insight economist Howard Archer said that the record low bond yield "reflects expectations of a BoE rate cut and likely revival of quantitative easing" or QE measures.
He added that the bonds were also regarded by investors as a safe asset in times of economic uncertainty.
Germany's DAX 30 fell 1.8% and the CAC 40 in Paris lost 1.7%.
"On the market today (on Tuesday) there was a classic, almost textbook, case of general risk aversion, with European shares ... bond yields and the pound which has become the new barometer for risk since the vote for Brexit all falling, while gold and even silver rose," said Vincent Ganne, another analyst at FXCM.
Bad debt
Shares worldwide had pushed higher since last week after a string of major central banks promised they would shore up financial markets to protect them against any negative fallout from Britain's decision to leave the European Union.
The Italian financial sector remained under pressure on Tuesday after a warning from the European Central Bank that Italy's number-three lender Banca Monte dei Paschi di Siena, the world's oldest bank, had dangerously high levels of bad debt.
The Italian banking system is emerging as a big worry for investors, compounding problems after Britain's decision to leave the EU, with stress test results on the continent's lenders due on July 29. Italy's banks are expected to show capital shortfalls.
BMPS shares, quoted in Milan, saw another bad day after record lows Monday, falling by nearly 20%.
