THE FTSE 100 index fell to its lowest closing level this year, and the FTSE Mid 250 went to a five month low, as stocks absorbed the impact of Monday's near 3 per cent slide by the Dow Jones Industrial Average.
Sentiment in stocks was further damaged by the wild gyrations on Wall Street. The Dow kicked off the day in good form, and posted a 40 point rise shortly after the start of trading before coming under intense pressure and slipping back to show a 100 point plus shortly after London closed.
The back to back three figure falls on Wall Street occurred 90 minutes after trading in London finished, prompting intense worries in Europe that a much bigger correction in the US, and across other markets, could happen.
At the close of a tense trading session in London, the FTSE 100 index closed nursing a 66.0 decline at 3632.3, a fall of 1.8 per cent. The FTSE Mid-250 was even more roughly handled, finally settling a whopping 90.6 down at 4201.0, or 2.1 per cent lower on the session. The broad FTSE Actuaries All Share index fell 1.9 per cent to 1808.18, its lowest since March.
Footsie has now fallen 133.5 points, or 3.5 per cent, since Wall Street began to slide last week.
Senior traders were divided on whether British stocks could stage any sort of short term recovery.
The head of market making at one big European broking firm said he expected London to stabilise and possibly rally if Wall Street managed to close with something of a reasonable close.
Another said he felt the extreme volatility of US markets would trigger widespread selling by overseas holders of US stocks, producing a domino effect across global markets. On the other "hand, some said the British market could be wrong footed by surprise takeover bids.
Activity was further complicated by a series of economic news items from both sides of the Atlantic. In Britain, news of a higher than expected public sector borrowing requirement for June unnerved gilts. The 10 year gilt fell almost a half point before rallying.
Mr Eddie George, governor of the Bank of England, also caused unease with his evidence to the Commons Treasury committee. He said the latest cut in interest rates could make it marginally more likely that the government's inflation target could be missed.
In the US, there was some comfort for bonds with better than expected inflation data and reassuring industrial production figures.
