The FTSE 100 index recorded a three-figure loss at worst yesterday as domestic and international nervousness predominated.

Early signs on Friday that the Dow Jones Industrial Average would recover from Tuesday's near 300-point slide proved illusory and weakness in the US was compounded by a 200-point slide on Japan's Nikkei 225 average yesterday.

Thus some fairly benign British producer figures, which showed that prices at the factory gate fell 0.1 per cent in July and provided no inflationary threat, were unable to halt the slide.

With almost 12 points attributed to ex-dividends, Footsie fell 124 before rallying to end 92.8 lower at 5,587.6. The FTSE 250 fell 18.3 to 5,304.7 and the SmallCap 7.5 to 2,405.6.

One reason for the market's recent weakness could be found in the latest survey to paint a gloomy picture of the prospects for equities.

This time it was Merrill Lynch slipping in the knife. In its monthly survey of UK fund managers, published yesterday, Merrill found that profit expectations were collapsing and there was a definite shift into cash.

The view was in high contrast to the position in the first quarter of the year when investors were moving back into the market, after reporting their highest cash holdings in percentage terms for 20 years.

Merrill spoke to 66 institutions with £2,240 billion sterling under management collectively. The broker said fund managers now predict earnings per share will grow by only 5 per cent, the lowest growth forecast for three years. Moreover, only 3 per cent of managers expect an upturn in the UK economy over the coming year, the lowest level of confidence for nearly 20 years.

"There is an immense level of consensus here," said Mr Trevor Greetham, Merrill's global strategist. "I have never personally seen it so extreme. The last time we had this degree of pessimism was in 1980, and that was when base rates were 17 per cent."