The threat of serious damage to corporate earnings from the economic and financial turmoil in Asia shackled the British equity market yesterday.
The Asian effect, already seen in numerous earnings downgrades of stocks with obvious links to the region - such as Standard Chartered and HSBC - was felt sharply yesterday on both sides of the Atlantic.
At the end of a highly volatile session, marked by hectic arbitraging between the future and cash markets and talk of some eccentric prices on the electronic order book, the FTSE 100 had dropped 5.9 to 5,272.3. The market had reacted to a series of programme trades, linked to institutional portfolio rebalancing.
Dealers insisted that Britain was mostly well underpinned, noting revived talk of takeover moves in the insurance sector, mostly focused on Guardian Royal and London and Manchester, plus talk of a twin bid from the US for Vodafone and Energis.
There was steady institutional support for the second-liners and smaller stocks. The FTSE Mid-250 settled 4.9 firmer at 4,825.8, while the SmallCap rose 2.0 to 2,364.2.
Leading stocks were constantly pressured after an uncertain opening, especially as Wall Street looked shaky in early trading in the wake of IBM's warning about first-quarter earnings.
The Dow Jones Industrial Average, which delivered a powerful performance on Tuesday evening, went into reverse yesterday, sliding 50 points within minutes of the opening bell. Not long after London closed, it fell in excess of 100 points.
A rather complicated picture for British stocks was compounded by conflicting domestic economic news on retail sales and M4 money supply for December.
Retail sales for the most important sales period of the year showed a surprising 0.1 per cent month-on-month fall, although that was after a substantial seasonal adjustment. That data - evidence, on the surface, of an economic slowdown - was offset by a jump in M4 money supply growth to 11.2 per cent.
Gilts responded strongly to the figures, although the debate about the need for a further increase in British interest rates is far from over. Sterling, meanwhile, slipped back, notably against the deutschmark. London's performance was all the more disappointing in that the pharmaceutical sector mostly continued to make rapid progress. It was set alight on Tuesday by the revelation that SmithKline Beecham has held merger talks with American Home Products.
At its best, in mid-morning, the index recorded a 19.1 gain, getting to within 2.7 of the 5,300 mark, while at its worst, 5,230.6, it posted a fall of 47.6.
The daily turnover figure continued its recent good run, passing 1 billion for the second consecutive session, once again boosted by corporate activity. The battle for control of Allied Colloids ended with Ciba of Switzerland victorious after it topped the offer from Hercules. Turnover in Allied Colloids accounted for 8 per cent of the total.
