More worrying economic news, seen as piling on the pressure for another rise in domestic interest rates, was the main factor behind the latest sharp fall in the FTSE 100 index.
To add to London's woes, Wall Street delivered another erratic and ultimately weak performance, following up Wednesday night's 71-points decline in the Dow Jones Industrial Average with a further retreat not long into the US session.
The Dow dropped over 150 points not long after London closed, with an initial 68 point gain in the average demolished as US trading went into overdrive.
The latest economic news upsetting the market was the producer price news, which showed input prices in December up almost twice the consensus estimate and output prices well ahead of forecasts. Market strategists said the latest news added to the calls for another increase in rates after the next scheduled meeting of the Bank of England's monetary policy committee, on February 9th/10th, with talk of a 50-basis points increase being heard.
Equally worrying, dealers said, is the prospect of a rise in US rates, too, probably before the Bank of England meeting. The US Federal Reserve's open market committee (FOMC) meets on February 1st/2nd and there is a growing expectation that it may decide to lift US rates by 50-basis points.
Mr Richard Jeffrey, group economist at CCF Charterhouse, said; "The market is beginning to understand there is aggressive intent behind these expected increases; they are designed to slow the economy. It's negative for the stock market until we find out how high rates are going."
Market-makers, who have had to cope with a three-day sell-off, generally took the view that the market had now factored in the short-term interest rate worries. "The damage is already in the price; we've adjusted for higher rates, hopefully," said one dealer.
At the finish of another busy session, the FTSE 100 was down 96.7 at 6,348.7, extending the decline over the three sessions to 320.8, or 4.8 per cent. Not long into yesterday's session the 100 index looked set to push through the 6,500 level, hitting 6,492.7.
The weakness extended to the market's second-tier stocks, where the FTSE 250 closed 37.6 lower at 6,457.9; at its best of the day the 250 touched 6,522.8. The FTSE SmallCap provided some relief for investors, closing a net 5.3 higher at 3,249.4.
Turnover in equities reached 2.26 billion shares, with Vodafone AirTouch accounting for 215 million shares, or 9.5 per cent.
