London's equity market staged an impressive rally yesterday afternoon, clawing back much of the huge loss incurred early in the session when marketmakers chopped their dealing prices.

That early markdown occurred as dealers successfully headed off any attempted heavy selling by the big institutions after Wall Street's sell-off on Thursday and Asian losses.

But, having clawed its way back into positive territory from an early 259-point plunge, the FTSE 100 index once more went into freefall during the last half-hour of trading, as the Dow Jones gave up an early 65-point gain and registered a 150-point fall shortly after London closed.

The mid-afternoon rally came as a rumour swept the markets that the US Federal Reserve was about to cut interest rates in an attempt to take the heat out of turbulent stock markets.

"It really wasn't as bad as some had expected," said one marketmaker. "After the big hit, there was precious little selling from the big boys; on the contrary, we've seen plenty of buying interest. Fund managers always take these opportunity to mop up stock they haven't been able to buy on the good days. But I still wouldn't buy the market this side of 5,000 with all the potential for more upsets around the globe," he said.

At the close, the FTSE 100 index posted a 119.1 loss at 5,249.4, its third three-figure retreat on the trot and its fourth triple-digit move in as many sessions.

The FTSE 250 also took a hiding, closing 111.0 down at 4,786.2, having been down 174.1 at its worst.