STOCKS fell sharply for the third successive session yesterday, with the FT-SE 100 index sliding below 4,000. London was hit by a sharp reversal in gilts and by the continuing weakness on Wall Street.

Gilts came off on widespread profit-taking and also in the wake of a ruling in the European Court against the British government regarding the refunding of excess value added tax on discounted goods. An unsubstantiated story that Goldman Sachs, the US investment bank, had taken the whole of the auctioned stock was also circulating in the market and was said to have caused widespread unease.

The FT-SE 100 index fell a further 29.0 to 3,999.4, the first time it has dropped below 4,000 since October 10th and extending its decline over the past three days to 73.7 or 1.8 per cent. Although never as weak as the leaders, the second-line issues also gave ground, with the FT-SE 250 slipping 6.6 to 4,424.5 and the SmallCap 2.4 to 2,181.6.

Dealers were again unnerved by Wall Street's erratic behaviour, which saw the Dow Jones Industrial Average drop almost 70 points on Wednesday evening, before rallying to close only 25 points off.

ICI was the best performer in the FT-SE 100 index, with the market showing its relief that the company's third-quarter numbers were no worse than expected and were in fact accompanied by a relatively optimistic statement.

There was similar relief for BAA, another big outperformer, as the regulator of its business, the Civil Aviation Authority, detailed its final proposals on charges for the next five years at Heathrow, Gatwick and Stansted airports.

On the downside, BSkyB took another hammering. The shares followed Wednesday's 6 per cent slide with a similar retreat, after News Corp confirmed proposals to issue convertible preference shares against its holding in the British satellite group, whose stock had been hitting records in the previous few weeks.

BSkyB's dismal performance was almost matched by Pearson, where the recent bid speculation continued to wane.