BRITISH stocks took a double hit yesterday, wounded by Wall Street's biggest daily decline since July, and by a disappointing outcome to the auction of £2.5 billion sterling of five year gilts.
The latter removed one of the props behind the equity market's recent move towards its all time intra day and closing highs.
And there was further extreme nervousness around European stock markets as Wall Street opened weaker again yesterday.
At the close, the FT-SE 100 index showed a 16.3 loss at 4,045.2. There was more resilience in the second liners, where the FT-SE 250 index posted a modest 5.7 decline at 4,421.9.
Even more impressive was the performance of the FT-SE SmallCap index, which managed a minor improvement, closing 1.5 firmer at 2,162.8.
Marketmakers were not too dismayed by London's decline, which they said was entirely expected given the sharp change in fortunes on Wall Street and the weakness of gilts.
The general consensus was that Wall Street was overbought and that a correction was needed. "But just how much of a correction is the question that everyone is asking," said one senior trader. He added that London remained relatively at ease at the prospect of a downturn in the US.
The Dow Jones Industrial Average gave up nearly 80 points on Tuesday, losing touch with the 6,500 level. The downward trend continued yesterday when the Dow was off over 30 points during its morning session.
Footsie kicked off the trading session down some 5.8 points. Trading was subdued until news of the gilt auction was published.
Covered only 1.7 times, the auction was instantly followed by a sharp sell off in gilts as well as pockets of equity selling, which drove prices sharply lower for the rest of the day despite a number of attempts to rally. The 20 year gilt was down almost a full point at the close.
A continuation of sterling's sharp lurch downwards on Tuesday afternoon, which should have bolstered shares in the big exporting companies, had little impact on the stock market.
At its worst, only minutes after Wall Street opened, Footsie was down 23.3 at 4,038.2. It stabilised towards the close of business, ending seven points off the bottom.
Among the best Footsie performers were Siebe, still responding to the good results on Tuesday and ICI, which moved up strongly in the wake of titanium dioxide price increases instigated by Du Pont of the US. Kingfisher's trading update was well received and was said to have bolstered other retailers, such as Dixons and House of Fraser.
Reports that BAT Industries has been involved in talks about the demerger of its financial services businesses - a move that analysts have been promoting for many months - triggered keen interest in the shares and in the composite insurance area.
Turnover at 6 p.m. reached 750.2 million shares. Customer business on Tuesday, £956.9 million, was the fourth consecutive figure below the £1 billion mark.
