What looked like an equity bloodbath yesterday was more a very close shave with a blunt blade. The news looked pretty bleak. The leading index was down more than 3 per cent as part of a global sell-off. It shrugged off news of what could turn out to be the biggest ever takeover by a British-listed company.
But traders and strategists all said they had seen little genuine heavyweight selling and many remained convinced that once the big investment institutions were back in gear after the summer holidays the buyers would return.
Although the FTSE 100 index ended the day 154.8 down at 5,432.8, the head dealer at one broker said: "I think at this stage it is just a buyers' strike.
"Everybody is so bearish at the moment. There is cash available and people want to buy the market. But there is so much uncertainty that people are sitting on their hands," he added.
London was always heading lower. It opened in the wake of heavy falls in Japan and Hong Kong.
The currency markets registered their lack of confidence in Japan's new administration and the yen dropped to its lowest level against the dollar for eight years.
Footsie was quoted down 30 points after the pre-market index was calculated and by lunchtime it was off 184 points. At that stage, it was showing a slide of more than 12.5 per cent since the peak just over three weeks ago.
The net slide represented the biggest one-day points drop since October last year, and was one of the heaviest points declines ever. However, in percentage terms, the fall was just 2.8 per cent, compared with the 12.2 per cent suffered in one session during the crash of October 1987.
News that BP plans to take over Amoco to create a £110 billion sterling company gave a brief fillip and Footsie clawed back 80 points very quickly.
However, arbitrageurs selling BP to buy Amoco as a cheap way into the deal eroded the gains in BP and undermined any prospect of a general recovery.
Moreover, the Dow Jones Industrial Average was down more than 200 points during the last hour of the British trading session.
Most of the weakness in London sprang from selling in the derivatives market, where Footsie futures traded at a small but persistent discount to their estimated fair value throughout the day.
"That suggested people were looking to sell equity risk rather than offload shares," said Ian Scott of Lehman Brothers, who remains convinced that Footsie can return to 6,400 by the end of the year.
On the other hand, the selling affected all areas of the market. The FTSE 250 index fell 102 points to 5,202.3 and the SmallCap 37.9 to 2,367.7.
Turnover by 6.00 p.m. appeared unusually heavy at 941 million shares. Nevertheless, once the 180 million shares traded in BP and Shell Transport were stripped out, the underlying volume was not excessive.
Because of the heavy trade in the oil leaders, it was weighted firmly in favour of Footsie stocks, which accounted for nearly 60 per cent of the day's total.
