The FTSE 100 lost its grip on the 6,000 level yesterday, burdened by a poor opening performance by Wall Street and switching which prompted by a significant decline in sterling. After the frantic weekend activity surrounding the leadership of the new European Central Bank and the establishment of the new European single currency - the euro - sterling fell away against most leading currencies amid growing expectations of interest rate rises across Europe.
Fears of such moves were triggered by the Danish authorities, which increased their rates, bringing an instant response from other European currencies, most notably the deutschmark, against which sterling dipped around two pfennigs.
The turbulence surrounding the leaders never came near to disturbing the seemingly relentless advances by the market's second-line stocks and small caps. The FTSE indices representing both areas of the market extended their recent upsurges to fresh peaks.
Hampered by another burst of persistent selling across the financial sectors of the market, the FTSE 100 ended an erratic session 23.8 lower at 5,986.5, halting a sequence of four straight winning performances by the London market's benchmark index.
There were no such uncertainties surrounding the FTSE Mid250 and SmallCap. The former raced up again to hit a new intra-day record of 5,682.4, before finishing the day 29.3 ahead at a closing high of 5,682.3. The FTSE SmallCap closed 8.4 firmer at a peak 2,665.3.
Weakness in the front-line stocks was in sharp contrast to the opening performance of the market, which saw the FTSE 100 kick off in great shape and advance to a session high of 6,064.6, up 54.3, during the first flush of excitement prompted by the "euro effect".
Sentiment was additionally enhanced by Wall Street's excellent showings on Friday evening and Monday, when the Dow Jones Industrial Average pushed ahead to a record close.
But the bullish sentiment was quickly eroded, the Footsie slipping within an hour of the opening and never regaining its early poise.
Downside damage to the market was once again focused on the banking sector, where the big mortgage lenders were hit by significant selling linked to the perceived fierce competition in the sector. Alliance & Leicester and the Halifax were prominent among the worst performers in the Footsie.
The strategy team at Credit Suisse First Boston said in their latest strategy report: "While last week's benign US economic numbers helped to pull markets out of a sharp dive, it seems too early to conclude that global turbulence has passed. Uncertainty about interest rates within Europe still remains a live issue."
The strategy team at Goldman Sachs said it had revised earnings forecasts for Britain to reflect slowing activity. The US investment bank cut its earnings growth forecast to 6 per cent, from 8 per cent, against a consensus figure of 9 per cent.
