By Sruthi Shankar and Devik Jain
(Reuters) - Britain's FTSE 100 fell to its weakest close since October 2011 on Monday, as economists predicted a contraction of the global economy and a raft of UK firms warned of earnings hits amid the spread of the coronavirus.
The blue-chip index <.FTSE> fell 3.8%, sinking back into the red after a two-day bounce that had been driven by extraordinary stimulus unveiled by governments and central banks last week.
The index erased all of its losses at one point on Monday after the U.S. Federal Reserve rolled out measures, including backing purchases of corporate bonds and making direct loans to companies.
But those gains evaporated as investors continued to fret over the severity and the prolonged impact of the outbreak.
"While central bank and fiscal action is absolutely crucial, the key requirement to stop the market rout is investors believing the virus is behind us," said Seema Shah, chief strategist at Principal Global Investors.
"Until that happens, central bank and fiscal action will quickly become out-dated, requiring policymakers to repeatedly re-visit and multiply their stimulus plans."
British Prime Minister Boris Johnson warned over the weekend the government may have to impose curfews and travel restrictions, another potential blow for businesses.
UK clothing and homewares retailer Next <NXT.L> said it would close its stores from 1800 GMT on Monday until further notice. Its shares closed down 11%.
Shares in Associated British Foods <ABF.L> fell 7.5% after it said Primark was closing all of its stores around the world, a loss of roughly 650 million pounds ($760 million) worth of net sales a month.
Publisher Pearson <PSON.L> dropped 9% as it said it would halt share buybacks and forecast a 25 million to 35 million pound hit to operating profit this year due to the closure of many of its academic testing centres.
Airlines including easyJet <EZJ.L> and IAG-owned British Airways <ICAG.L> plunged again, with no announcement on the outcome of discussions over support packages for their industry.
Investors took little comfort from a fresh round of stimulus announced of Friday that included the British government paying a massive share of private sector wage bills to discourage bosses from firing staff. That came on top of aggressive interest rate cuts from the Bank of England and billions of pounds pledged as fiscal stimulus.
The FTSE 100 is down 35% from its peak in January and on course for its worst monthly performance since 1987, while the FTSE MID 250 index <.FTMC> of midcap stocks is down more than 40% from its all-time high.
Goldman Sachs predicted global real gross domestic product would contract by about 1% in 2020, a sharper economic decline than in the year following the 2008 global financial crisis. It saw advanced economies contracting "very sharply" in the second quarter, including a 24% drop in the United States.
In one bright spot, hand sanitizer-maker Byotrol <BYOT.L> surged 33.8% as it saw a surge in demand for its infection prevention products amid the coronavirus health crisis.
(Reporting by Sruthi Shankar and Devik Jain in Bengaluru; editing by Patrick Graham, Arun Koyyur and Andrew Heavens)