A soggy return by Wall Street after the Martin Luther King break - said to have been caused by sharp falls in bonds - and talk of a sell programme brought an end to the two-day upsurge in London's equity market.
Adding to the market's problems was a set of strong data on manufacturing output and industrial production, which was being interpreted as adding to pressure for another increase in British interest rates. The Bank of England's monetary policy committee, which increased domestic interest rates by 25 basis points to 5.75 per cent after its last meeting, next meets on February 9th and 10th. A Paribas economist said: "We continue to suspect that a 50-basispoints hike could be in the pipeline. Another strong batch of labour market data would reinforce this view." Today brings average earnings news for November and the unemployment report for December.
Mixed in with the sell programme and the interest rate worries was another sell-off in Glaxo Wellcome and SmithKline Beecham, whose shares gave a disappointing response to Monday's merger news. There was similar damage to the FTSE 100 from the two biggest British telecom stocks, BT and Vodafone AirTouch, which have big weightings in the benchmark index.
All the FTSE indices suffered but the pain was mostly concentrated in the leading 100 stocks and specifically on the financial stocks - burdened by the interest-rate rise concerns. At the end of a turbulent session, the FTSE 100 was left nursing a 164.9 or 2.5 per cent decline at 6,504.6.
Losses in the rest of the market were never as severe as those in the leaders but were still worrying. The FTSE 250, always heavily influenced by trends in hi-tech stocks, was finally 58.8 lower at 6,567.4, burdened by rather negative comment on recent news from the hi-tech areas, which saw Eidos, Druid Group and FI Group suffer substantial losses.
On the other hand, there was no shortage of big winners in the second-tier hi-techs, which provided eight out of the top 10 performers in the 250 index. Close Brothers, now one the few remaining quoted British investment banks after the takeover of Schroders, and Emap, one of Warburg Dillon Reas's midcap picks for 2000, were the others in the top 10.
The FTSE SmallCap proved the most resilient of the indices, clinging on to minor gains all morning and hitting another intra-day peak of 3,276.0, only succumbing to the overall market malaise towards the close. The SmallCap settled 8.1 lower at 3,255.7. Turnover in equities was 2.2 million shares.
