A substantial two-way pull developed in London's equity market, with the bears just managing to emerge triumphant over the bulls and the FTSE 100 finishing a ragged and tense session with a minor loss on balance.
The market's woes still stemmed from the threat of a rise in US interest rates as the worrying comments on US inflation from Mr Alan Greenspan, chairman of the US Federal Reserve, continued to plague Wall Street. The Dow Jones Industrial Average finished 60 points off overnight but took a substantial dive after London closed yesterday, falling more than 120 points.
But what really sent the market reeling early yesterday was a sequence of profits warnings from some of the market's leaders. To the fore were ICI and Boots, and there was more bad news on the profits front from some of the second-liners and smallcap stocks.
But as the pressure was seen to lift on the leading stocks, where the rally in the market tended to be concentrated on the financials, specifically the banks, there was an intense bout of sell-side pressure on the second liners and to a slightly lesser degree the smallcaps.
As the curtain came down on a market still struggling after two days of exceptionally heavy losses the FTSE 100 was left with a 13.4 decline at 5,976.2.
That relatively sedate finish to the day masked some erratic movements. The index tumbled more than 64 points in mid-morning as worries about US interest rates and the impact of the profit warnings from ICI and other leading stocks combined to unnerve the market.
But the real downside pressure impacted on the second liners where the FTSE 250 index, which resisted much of the downside pressure that hit the 100 index on Wednesday, reeled back to finish the day a net 86.4 or 1.5 per cent off at 5,572.9, the day's lowest level.
Similarly the FTSE SmallCap was always under pressure and finished the day only a fraction above its lowest level. It closed a net 20.2 off at 2,550.0.
The shift in market sentiment, around midday, was triggered, according to dealers, by Nationwide policyholders, who voted narrowly to retain mutual status. That move saw a sudden burst of buying interest across the banking sector.
Specialists said the Nationwide decision had taken some of the competitive threat out of the market. Dealers said fund managers had been putting cash aside to buy into the Nationwide and with that threat now largely dissipated they had to re-invest the cash into other banking stocks.
The sector was also being driven ahead by the prospect of substantial dividend increases as the results season unfolds.
Northern Rocks's results were well received and dealers said the market was pricing in some very big dividend increases, notably from Lloyds TSB, the market's most highly rated bank and where a 25 per cent increase in the interim payment is being talked about.
The Royal Bank of Scotland saw its shares put on 31p to £10.40 while NatWest was 18p north at £11.89.
Drinks companies did well with Allied Domecq improving 12p to 590p and Scottish & Newcastle advancing 15p to 859p.
Retailers JJB Sports slipped 17p to 516 1/2p on news it was set to take over its bigger rival Sports Division in a deal worth £290 million, to create a massive group with a 16 per cent market share.
United News & Media dropped 29p to 866p after it announced plans to demerge its money, broking and financial information businesses. In contrast, international media group Pearson put on 18p to £11.70.
Legal & General announced a boost in underlying profits and plans to create 300 jobs and it improved 25p to 745p.
Elsewhere in the sector, Prudential Corporation gained 11p to 862p and Norwich Union firmed 13p to 446p but Sun Life & Provincial eased 3p to 557p.
Turnover was 926.1 million shares.
