Wednesday's rally in British stocks proved disappointingly short-lived as London's equity market moved decisively back on to the downside track.

There were no fresh factors behind yesterday's widespread retreat by British stocks, simply a herd-like follow-on from Wall Street's disturbing late sell-off and a continuation of the weakness of American markets at the outset yesterday. There was no massive sell-off on Wall Street overnight. Rather it was the about-turn from strength to moderate weakness - the Dow Jones Industrial Average finished only 45 points down having been up three figures and more - that unnerved global markets.

Once they had lost their collective nerves, the markets fed on the increasing unease. Most of the Asian markets fell only modestly, with Tokyo down less than 1 per cent and Hong Kong even less.

But European bourses had to cope with hefty losses, especially Frankfurt and Paris. Wall Street's continuing weakness at the outset yesterday - it dropped another 100 points during the afternoon - did nothing to calm nerves.

There were continuing suggestions from market-makers and brokers that London was seeing a further taste of switching manoeuvres by domestic and overseas funds, out of equities and into gilts.

But turnover levels, at least in equities, were never more than run of the mill and fixed interest traders said there was no substantial shift into gilts. Rather, they said, a good performance by gilts was due to a rather depressed service sector survey.

Even more disappointing as far as the equity market was concerned, was the poor response by stock prices to the latest slide in sterling against most currencies, although not the dollar. The Bank of England's tradeweighted index fell a further 0.6 to 104.4, extending the decline over the past three sessions to 1.6.

At the close, the FTSE-100 was 117.1 lower at 5,118.7, its fifth decline in the past six sessions and its fourth three-figure loss in that period.

At its worst the index fell back through the 5,100 level, hitting 5,089.3, down 146.5, and there were real concerns among traders that the psychologically important 5,000 level was about to be tested.

Market-makers said the 5,100 level was well defended. "The institutions moved in and bought the market quite aggressively then," said one, who insisted a move below 5,000 could produce a serious burst of selling from small investors, unused to bear markets.

Second-line and smallcap stocks were also given a thorough shaking, the FTSE Mid-250 index dropping below the 4,700 level to finish a net 63.2 lower at 4,648.8, and the FTSE SmallCap index relinquishing 13.1 at 2.068.2.

There was another flight to safety in the leaders, with food retailers, traditionally a safe haven in turbulent markets, being pushed by Credit Lyonnais Securities. And the possibility that a cut in British interest rates may now come much earlier than previously expected was a help to housebuilders. Turnover at 6 p.m. was 850.2 million shares.

Thistle Hotels gained 1/2p to 153 after it announced it was selling around a third of its portfolio to a subsidiary of investment bank Lehman Brothers.

Good results from Wembley, which returned to the black, bolstered its shares by 6 1/2p to 325p. And restaurant chain PizzaExpress rallied 20 1/2p from yesterday's year-low of 596p as analysts said the stock had been sold too cheaply.

Shell Europe Oil Products announced a deal with Texaco to create an alliance of some European marketing and manufacturing activity, but the market was unimpressed shaving Shell shares by 5p to 330p.

Still in the oil business, Enterprise Oil fared even worse. After reporting a two-thirds drop in profits, its shares slipped down 38p to 332p.

Tesco was marked down 6 1/2p to 173.5p, despite new data which showed it had cemented its place as Britain's top grocer.