A VEILED warning from Mr Alan Greenspan, chairman of the US Federal Reserve, of "irrational exuberance" in financial markets hit global markets like a thunderbolt yesterday, and produced the biggest one-day fall in the FTSE 100 index since June 1994.
Dealers in London took swift evasive action, slicing their opening quotes in response to big falls across Asian markets and in anticipation of a big hit on Wall Street.
After one of the most turbulent trading sessions for many months, the FTSE 100 index was left nursing a loss of 88.2 points, or 2.2 per cent, at 3,963. The weakness in the leaders was also seen by the FTSE 250 index, which fell 87.7, or 2 per cent and the FTSE SmallCap which dropped 34.1, or 1.5 per cent, to 2,132.8.
Despite the afternoon rally, market-makers still expect a further bout of turbulence next weeks as the market contends with the continuing political uncertainty.
Political worries intensified late in the session on news that Mr John Gorst, the Conservative MPG for Hendon North, had resigned the government whip, wiping out its overall majority.
Wall Street gave a slightly calmer-than-expected response to the Greenspan story, moving down around 140 points during the first hour. The US non-farm payroll report for November showed signs of subdued economic growth, easing interest rate fears.
