The FTSE-100 index fell again yesterday to leave it almost 13 per cent below its peak of less than three weeks ago.

The magnitude of the downturn has finally generated the market equivalent of genetic mutation. As the headline index fell 62.7 to 5,399.5, one reluctant bear has turned bullish - BT Alex Brown.

Towards the end of June, the broker published a note entitled It's all going horribly wrong. Back then, strategist Bob Semple argued: "The UK equity market will remain a roller coaster ride over the next few months. With cash currently offering 7.5 per cent it remains the best place to put new money."

Yesterday, the mood at Bishopsgate had changed and Mr Semple sunnily exclaimed: "Investors should now start to buy the UK into the current market fragility, and we no longer expect it to underperform the rest of Europe."

He said Wednesday's earnings data made the latest inflation report from the Bank of England "instantly redundant" and it was now much more likely that interest rates had peaked. Mr Semple's optimism was borne out by the underlying tone in the market.

Dealers said there was very little genuine selling, and one trader said two-thirds of the day's orders had been buys.

"Share prices might be tumbling, but whenever I speak to the big institutions they say it is very quiet," said the head of sales at one broker.

"I was around in 1987 and just before the crash it was completely different. Then you were snowed under with orders," he said.

However, the argument was not backed by the headline performance of the leading indices.

The Footsie future, which has an estimated fair value calculated at about 30 points above the prevailing level of the FTSE-100, was trading 90 points below the cash market just before it opened.

The heavy fall was a response to comments by Mr George Soros, the billionaire financier, about the state of Russia, and it set the tone for the day.

The Footsie was off 112 points on very little volume shortly after the start of trading and spent the rest of the session trying to recover.

It was hampered domestically by heavy selling of the midcap stocks which ensured the FTSE Mid-250 index ended the day 59.7 lower at 5,154.

At that level it is 8 per cent above its close on the last day of 1997, while Footsie is only 5 per cent above its year-end close.

Dealers said that, while selling pressure on the Footsie has faded, it was intense in the midcap index and had driven the price of selected stocks to a level where they appeared very cheap to overseas predators.

"Every institution wants to sell the midcap and some of the smaller companies are now a steal to foreign buyers," said one dealer.

Elsewhere, the SmallCap index ended 26.6 down at 2,333.1.

Overall turnover was 845.4 million although turnover was boosted by heavy trade for the third day in BP and Shell, which accounted for 100 million shares. BP was up 8p at 802p and provided some relief in the sea of red on City screens.

Financial stocks took the brunt of heavy selling with HSBC down 41p to £12.60, Standard Chartered 33 1/2p to 573 1/2p and Abbey National 11p to £10.95.

Exporters were among the losers with Smiths Industries down 22 1/2p to 716 1/2p, Unilever 15 1/2p to 567p and British Aerospace 14 1/2p at 435 1/2p.

Brewers Vaux Group plummeted 41p to 318 1/2p as it denied speculation that it was in bid talks. The shares have added more than £1 since the company reported its interim in May.

Television company Flextech moved into the black and said it was well-placed to benefit from digital TV. Dealers were impressed and it added 23 1/2p to 497 1/2p. Satellite broadcaster BSkyB, which yesterday unveiled its pricing structure for digital viewers, gained 18p to 446p.