The FTSE 100 index started in confident mood, climbing 49.4 to 5,217.0 during the first half hour. But that proved the best level of the day as the index drifted lower over the morning.

The UK market was then sandbagged by international developments over lunchtime. Firstly, the European Central Bank decided to leave interest rates unchanged rather than cut by a quarter of a percentage point - as some had been predicting.

Then US data indicated that the economy had been very badly hit after the September 11th terrorist attacks. Durable goods orders fell 8.5 per cent in September and existing home sales fell 11.7 per cent, while weekly jobless claims rose to 504,000.

The Dow Jones Industrial Average was weaker from the opening, falling 167 points in the first 40 minutes. Footsie hit its low for the day of 5,043.2, down 124.4, just before the Wall Street opening.

The Dow steadied and that allowed the FTSE 100 to close with a loss of 81.0 at 5,086.6, in the lower half of its recent trading range. The other indices held up rather better. The FTSE 250 gained 15.5 to 5,420.3 while the SmallCap fell 0.8 to 2,351.2 and the Techmark 100 dropped 13.59 to 1,377.88.

Banks lost some of the ground gained over the previous two sessions while telecoms also lost ground, with Cable & Wireless the worst Footsie performer after a broker downgrade.

Turnover was lower than on either Tuesday or Wednesday, with 2.03 billion shares traded by the 6 p.m. count.

The rally in global equity markets since September 21st's lows has been based largely on hopes that interest rate cuts from the world's central banks will help the economy and corporate profits to recover in 2002. But yesterday's data indicated there may still be a lot of bad news before that recovery takes place.

Downgrades of global profit forecasts have accelerated in recent weeks. However, Mr Michael Saunders of Schroder Salomon Smith Barney said the latest figures for UK earnings estimates are "considerably less weak than the worst of the early 1990s, when activity was squeezed by high UK short rates plus high corporate and household debt levels, on top of the global slowdown. This fits in with other signs that, although UK growth is slowing, it is slowing less than the global norm."